Sterling has been blasted lower after BoE governor Carney cast doubt on a previously pretty-much-expected UK May rate hike. The EU's rejection of Britain's latest Brexit-Irish border plan only served to deepen the rot.
Article / 16 June 2016 at 1:59 GMT

Brexit: UK Chancellor paints bleak picture of a leave vote

APAC Sales Trading Desk / Saxo Capital Markets
  • A new poll gave a slight edge to the 'remain' camp
  • This, along with the USD selldown, helped the GBP to bounce back
  • US yields have pushed global yields lower including the gilt
  • UK chancellor warns of a £30 billion budget black hole following a leave vote

By Saxo APAC Sales Trading

A new poll by Comres gave a slight edge to the “remain” camp, which goes against the trend of the recent polls. And this combined with the global USD selling following Yellen’s speech has helped the GBP bounce back from recent lows. But it is still below the 100d MA at 1.4351, which will be a strong resistance.

 UK Chancellor George Osborne warned of a £30 billion budget 'black hole' in
the event of a leave vote. Photo: iStock

The move higher in the GBP has helped push the back end of the volatilities curve (two months to one year) lower. The 2M volatilities dropped 2 vols lower from 22 to 20.

US rates
The US yields have pushed the global yields lower including the gilt, which could have had a relief yesterday with the rally in the GBP and in the FTSE but finally dropped 1 basis point lower. We have the Bank of England meeting today and the market expects no change at 0.5% but the Monetary Policy Committee will be cautious about the language ahead of the European Union vote. The market is now pricing a 25% chance of rate cut in July.

The FTSE 100 rallied 0.7% overnight with Tesco rallying 2.6% after Barclays said some of the catalysts for the stock’s recent weakness “strike us as exaggerated”. That is, the threat from AmazonFresh and Asda, “both of which were highly anticipated and neither of which is necessarily imminent or direct”.

A lot of women will be happy to know that Jimmy Choo spiked 13.8% after the shoe-and-accessories company said it: “made a good start to the year and trading is in line with our expectations”.

British homebuilders struggled after Berkeley Group (down 1.2%) announced that reservations for new homes at the start of the year had fallen 20%, due in part to concerns over the EU vote.

Chancellor George Osborne painted an unremittingly bleak picture of the country’s finances after a vote to leave, detailing an emergency slate of spending cuts and tax hikes he said would be required. He also said a £30 billion ($43 billion) budget “black hole” would open up due to reduced trade and investment.

– Edited by Gayle Bryant

For trade strategies, comments and research regarding the UK referendum on staying in the European Union, please see


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