Banks are divided with their latest forecasts for both the euro and UK pound exchange rates in the aftermath of next Thursday’s UK referendum on EU membership. As of 09:00 GMT this morning, one UK pound exchanged 1.2635 euros, or 0.30% higher (GBP/EUR). The current 14 day average GBP/EUR exchange rate adjusts to 1.275.
According to Banco Bilbao strategist Roberto Cobo Garcia, he expects a basket of safe haven currencies including the US dollar and the Swiss franc would benefit the most if the British vote is to leave the European Union. The bank has been recommending hedging against the risk for the UK pound by going short on the euro versus the Swiss franc.
While Credit Agricole’s Valentin Marinov’s forecasts that euro could suffer from concerns over the growth outlook for the euro zone and more action from the European Central Bank following the vote.
In favour of a Remain vote, Nordea Bank strategist Aurelija Augulyte likes buying the UK pound against the US dollar and keeping the trade into and after the vote, believing that a Remain vote will prevail. She expects a possible Bank of England rate increase by year end or early next year to also work in favour of the trade.
Invest In the UK Market Post Brexit
Meanwhile, one of Europe’s biggest banks yesterday advised investing in UK companies in the event of Brexit because they would outperform the European market. Analysts at Deutsche Bank say British a vote to leave the EU would cause panic on Europe’s stock markets in the weeks after June 23rd, causing them to fall by as much as 10%. But the UK stock market would perform better, boosted by a weaker UK pound.
Deutsche Bank concludes “In the case of a Leave vote in the UK referendum, we expect UK equities to outperform the European market, given GBP downside in such a scenario as well as the market’s defensive sector structure.”
The bank’s Sebastian Raedler, who helped compile the research, said “If this is correct then the FTSE 100 should outperform the Stoxx 600 (the wider European markets) by around 5%.”
However, Europe’s stock markets were seized by panic yesterday as financiers uncertainty over Brexit sparked a major sell off. The FTSE plunged 2%, down by 121 points after a wave of polls showed a Leave vote ahead in the EU referendum race.