06062016 Euro Forecast

The UK pound slides lower versus the euro and most major currencies early on Monday after latest polls show Britain’s EU Brexit campaign gaining momentum. As of 07:00 GMT this morning, one UK pound exchanged 1.2680 euros, or 0.66% lower (GBP/EUR).

The UK pound slumped to a three week low against the euro after polls showed more Britons favour exiting the European Union, reviving concern a June 23 referendum will throw global markets into turmoil and undermine confidence in the European Union.

An Observer poll released Saturday showed Leave with a three point lead at 43% to just 40% for Remain. In other recent polls, YouGov for ITV found 45% would choose Leave, compared with 41% picking Remain. A separate survey by TNS showed 43% supported Leave and 41% backed Remain.

Euro Currency Crisis on Brexit?

However, the euro’s exchange rate also weakened against the US dollar as concern that a UK Brexit would damage European trade and encourage other EU member states to renegotiate their relationships with the union or Leave as well.

“A Leave vote would expose a host of uncertainties. It would be more negative for the euro and the EU since the issue will drag on for other members.” said Sue Trinh, head of Asian foreign exchange strategy at Royal Bank of Canada, Hong Kong.

“You wouldn’t want to be too long euro assets in a Brexit, because, while the UK pound is the initial currency to sell, I suspect there are worse risks to Europe longer term.” said Chris Weston, chief markets strategist at IG, Melbourne.

Brexit Uncertainty for the UK pound Exchange Rate

A Brexit could lead to a protracted period of heightened uncertainty, triggering financial market volatility and hurting economic output, the IMF said in a report last month. A UK Brexit from the EU could also erode London’s position as a financial centre and cause sharp falls in UK house and stock market prices, the report suggested.

The reason the IMF believe a Brexit will cause long term damage to the UK economy is that they assume it will be more difficult for British companies to access the single market, which is an argument that doesn’t make much sense.

“We expect UK growth in the second quarter to slow to between 0.2% and 0.3%, which would reflect the lowest rate of growth since 2012.” said James Smith, an economist at ING.

“Our concern is, if the Brexit gets up, it’s going to be basically an ongoing period of problem after problem after problem after problem. It’s just going to make Europe on a relative basis un-investible.” said Mark Wills, head of investment solutions group for Asia Pacific at State Street Global.