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Pound hits seven-year low after Boris Johnson's Brexit decision - business live Pound hits seven-year low after Boris Johnson's Brexit decision - business live
(35 minutes later)
4.26pm GMT
16:26
Sterling is likely to continue falling even with the risk of Brexit, says Capital Economics, partly because the US is likely to continue raising interest rates while the Bank of England holds steady. The research group’s analyst John Higgins said:
Our forecast remains that sterling will fall further against the dollar this year, to $1.30 from around $1.41 now. Granted, the exchange rate has already fallen a long way in 2016, despite some stability in the gap between UK and US interest rate expectations.
And if the recent experience of Scotland’s referendum on membership of the UK is any guide, the exchange rate could rebound if it becomes clear to investors that the UK electorate will vote to stay in the EU. After all, sterling’s slide on Monday was similar in scale to the one that took place on the 8th September 2014, when a YouGov poll suggested Scotland might vote to secede from the UK – that slide had been completed unwound by the time the referendum took place eleven days later.
Yet a week is a long time in politics, let alone four months. So now, as then, there is ample opportunity for uncertainty about the result of the referendum to weigh on sterling, especially given the UK’s reliance on foreign investors to plug its large current account deficit. Indeed, our forecast that sterling will fall to $1.30 is partly based on a view that a further decline in the UK’s currency is needed in order to rebalance her economy...
There is another key reason why we expect sterling to lose more ground against the dollar, which is the relative prospects for monetary policy in the UK and US...
The risk of a Brexit could make the Bank of England disinclined to begin to tighten monetary policy before the referendum and we think it is likely to tread cautiously thereafter. Our end-2016 forecast for UK Bank Rate is therefore 0.75%. While this is more hawkish than the rate implied in the market, it represents just one 25 basis point increase from the current level.
By contrast, our end-2016 forecast for the US federal funds rate is a range of 1.0-1.25%, the equivalent of a further three increases of 25 basis points each. We continue to expect the Fed to tighten monetary policy much more rapidly than expected by the average investor as a tightening labour market in the US puts upward pressure on wage inflation.
4.08pm GMT4.08pm GMT
16:0816:08
Credit Suisse has taken a stab at what the UK could look like outside the EU:Credit Suisse has taken a stab at what the UK could look like outside the EU:
#Brexit: What would the #UK look like post leaving the #EU? Here's the $CS research risk scenario pic.twitter.com/B2s6m2CpYZ#Brexit: What would the #UK look like post leaving the #EU? Here's the $CS research risk scenario pic.twitter.com/B2s6m2CpYZ
UpdatedUpdated
at 4.11pm GMTat 4.11pm GMT
4.06pm GMT4.06pm GMT
16:0616:06
Joshua Mahony, market analyst at IG said:Joshua Mahony, market analyst at IG said:
There is no doubt that the Brexit referendum is rapidly becoming one of the biggest risk events of 2016 for financial markets. Boris Johnson’s decision to bolster the ‘out’ campaign with his support not only serves to undermine the fruits of David Cameron’s labour in Brussels, but clearly damages UK economic confidence, with sterling pounded across the board today. With the referendum set to take place in June, when the migrant crisis will be back into full flow, anxiety and fear will certainly push some voters towards a more isolationist stance.There is no doubt that the Brexit referendum is rapidly becoming one of the biggest risk events of 2016 for financial markets. Boris Johnson’s decision to bolster the ‘out’ campaign with his support not only serves to undermine the fruits of David Cameron’s labour in Brussels, but clearly damages UK economic confidence, with sterling pounded across the board today. With the referendum set to take place in June, when the migrant crisis will be back into full flow, anxiety and fear will certainly push some voters towards a more isolationist stance.
UpdatedUpdated
at 4.06pm GMTat 4.06pm GMT
3.47pm GMT3.47pm GMT
15:4715:47
David Cameron’s statement to the Commons is being covered on our politics live blog.David Cameron’s statement to the Commons is being covered on our politics live blog.
Sterling seems to be picking up slightly as he speaks, but the questioning once he finishes is likely to be key.Sterling seems to be picking up slightly as he speaks, but the questioning once he finishes is likely to be key.
3.45pm GMT3.45pm GMT
15:4515:45
As prime minister David Cameron stands up in the Commons to defend his EU deal, ING Bank suggests the pound could have further to fall. Strategist Viraj Patel said:As prime minister David Cameron stands up in the Commons to defend his EU deal, ING Bank suggests the pound could have further to fall. Strategist Viraj Patel said:
We remain cautious in prematurely calling the end of the Brexit-induced GBP downside.We remain cautious in prematurely calling the end of the Brexit-induced GBP downside.
The role of Brexit in steering recent sterling price action can be likened to a roller coaster warming up with some small twist and turns before an inevitable sharp drop.The role of Brexit in steering recent sterling price action can be likened to a roller coaster warming up with some small twist and turns before an inevitable sharp drop.
Our short-term financial models show that even after today’s sharp move lower, only a 1.5-2.0% risk premium is priced into sterling/dollar. Moreover, other UK asset markets are yet to be trading with any meaningful discount, while UK activity data is also likely to show signs of a temporary slowdown over the coming months. Hence, there are still valid reasons why the UK’s in-out referendum poses further downside risks to the pound.Our short-term financial models show that even after today’s sharp move lower, only a 1.5-2.0% risk premium is priced into sterling/dollar. Moreover, other UK asset markets are yet to be trading with any meaningful discount, while UK activity data is also likely to show signs of a temporary slowdown over the coming months. Hence, there are still valid reasons why the UK’s in-out referendum poses further downside risks to the pound.
Sterling’s recent immunity to opinion polls is a double-edged sword; while any under-estimation of Brexit risks by markets would limit near-term downside, the economic and political costs of a Brexit are likely to dawn on investors as we approach the June vote. As such, the pricing in of any Brexit risk premium could manifest itself swiftly and aggressively (while only fully showing up in the weeks or months leading up the vote).Sterling’s recent immunity to opinion polls is a double-edged sword; while any under-estimation of Brexit risks by markets would limit near-term downside, the economic and political costs of a Brexit are likely to dawn on investors as we approach the June vote. As such, the pricing in of any Brexit risk premium could manifest itself swiftly and aggressively (while only fully showing up in the weeks or months leading up the vote).
Expect sterling implied volatilities to stay very elevated, particularly those covering the referendum date. Today’s price action in the pound risk reversals shows the “longevity” of Brexit risks (ie, the enduring nature of downside potential stemming from a UK exit).Expect sterling implied volatilities to stay very elevated, particularly those covering the referendum date. Today’s price action in the pound risk reversals shows the “longevity” of Brexit risks (ie, the enduring nature of downside potential stemming from a UK exit).
3.30pm GMT3.30pm GMT
15:3015:30
Everyone wants their say on Brexit and after Moody’s, comes Fitch.Everyone wants their say on Brexit and after Moody’s, comes Fitch.
The ratings agency says the impact of a vote for Britain to leave the EU is uncertain but could have significant risks, depending on the reaction of the remainder of the Union:The ratings agency says the impact of a vote for Britain to leave the EU is uncertain but could have significant risks, depending on the reaction of the remainder of the Union:
Lengthy negotiations and uncertainty over UK firms’ future access to EU markets following a vote to leave in the upcoming referendum on EU membership (Brexit) would weigh on confidence and delay investment decisions. This would have a short-term economic cost, although the precise impact would be highly uncertain...Lengthy negotiations and uncertainty over UK firms’ future access to EU markets following a vote to leave in the upcoming referendum on EU membership (Brexit) would weigh on confidence and delay investment decisions. This would have a short-term economic cost, although the precise impact would be highly uncertain...
We believe that in the event of a Leave vote, the authorities on both sides would try to avoid disrupting the deep economic and financial integration between the UK and EU by establishing a clear new relationship, including a trade agreement that preserves UK attractiveness for investment. Some tightening of the freedom of EU citizens’ to work in the UK would be likely. Avoiding large-scale, permanent disruption to trade relations, including services, could limit the long-term economic cost to the UK, with Brexit only moderately negative for the UK.We believe that in the event of a Leave vote, the authorities on both sides would try to avoid disrupting the deep economic and financial integration between the UK and EU by establishing a clear new relationship, including a trade agreement that preserves UK attractiveness for investment. Some tightening of the freedom of EU citizens’ to work in the UK would be likely. Avoiding large-scale, permanent disruption to trade relations, including services, could limit the long-term economic cost to the UK, with Brexit only moderately negative for the UK.
But there would be significant risks, especially if the remaining EU members attempted to impose punitive conditions on the UK to deter other countries from leaving, or the UK sought very tough restrictions on EU citizens coming to work in the UK.But there would be significant risks, especially if the remaining EU members attempted to impose punitive conditions on the UK to deter other countries from leaving, or the UK sought very tough restrictions on EU citizens coming to work in the UK.
UpdatedUpdated
at 3.34pm GMTat 3.34pm GMT
3.19pm GMT3.19pm GMT
15:1915:19
Back with the pound, and the trade weighted index - its value against a basket of currencies - shows the UK currency is just above its 2014 lows but well above its lows of five years ago.Back with the pound, and the trade weighted index - its value against a basket of currencies - shows the UK currency is just above its 2014 lows but well above its lows of five years ago.
3.04pm GMT3.04pm GMT
15:0415:04
US manufacturing weaker than forecastUS manufacturing weaker than forecast
Over to the US briefly and some weaker than expected manufacturing figures, adding to the idea that a rate rise from the Federal Reserve could be some way off.Over to the US briefly and some weaker than expected manufacturing figures, adding to the idea that a rate rise from the Federal Reserve could be some way off.
The Markit initial estimate for the manufacturing purchasing managers index came in at 51 for February compared to forecasts of 52.3 and last month’s figure of 52.4. This is the lowest reading since October 2012.The Markit initial estimate for the manufacturing purchasing managers index came in at 51 for February compared to forecasts of 52.3 and last month’s figure of 52.4. This is the lowest reading since October 2012.
The news has supported equity markets, with the Dow Jones Industrial Average now up 1.3% or 221 points.The news has supported equity markets, with the Dow Jones Industrial Average now up 1.3% or 221 points.
2.53pm GMT2.53pm GMT
14:5314:53
Here’s our news story on Moody’s EU referendum warning:Here’s our news story on Moody’s EU referendum warning:
Related: Moody's warns Brexit would risk UK's credit ratingRelated: Moody's warns Brexit would risk UK's credit rating
2.52pm GMT2.52pm GMT
14:5214:52
All 30 Dow components have turned positive, and these are the top three leaders right now. https://t.co/ZVSOAAMusw pic.twitter.com/QgO94rVrg9All 30 Dow components have turned positive, and these are the top three leaders right now. https://t.co/ZVSOAAMusw pic.twitter.com/QgO94rVrg9
2.43pm GMT2.43pm GMT
14:4314:43
World stock markets continue to be unbothered by the Brexit issue.World stock markets continue to be unbothered by the Brexit issue.
Wall Street just opened, and the main US stock indices are up around 1%. In London, the FTSE 100 index of Britain’s largest companies is romping ahead, up 99 points or 1.7%.Wall Street just opened, and the main US stock indices are up around 1%. In London, the FTSE 100 index of Britain’s largest companies is romping ahead, up 99 points or 1.7%.
Investors are in merry mood, because the oil price has rallied today -- calming fears of a worldwide economic downturn and a crude glut.Investors are in merry mood, because the oil price has rallied today -- calming fears of a worldwide economic downturn and a crude glut.
UpdatedUpdated
at 2.43pm GMTat 2.43pm GMT
2.12pm GMT2.12pm GMT
14:1214:12
Top supermarkets refuse to sign FTSE firms' anti-Brexit letterTop supermarkets refuse to sign FTSE firms' anti-Brexit letter
The UK government’s attempts to drum up support from Britain’s top bosses has hit a snag.The UK government’s attempts to drum up support from Britain’s top bosses has hit a snag.
Three of the country’s largest supermarket chains, Sainsbury’s, Morrisons and Tesco, are declining to sign a letter backing the Remain campaign.Three of the country’s largest supermarket chains, Sainsbury’s, Morrisons and Tesco, are declining to sign a letter backing the Remain campaign.
Here’s the story:Here’s the story:
Top supermarkets refuse to sign FTSE firms' anti-Brexit letter https://t.co/7KbcgYCIfUTop supermarkets refuse to sign FTSE firms' anti-Brexit letter https://t.co/7KbcgYCIfU
2.07pm GMT2.07pm GMT
14:0714:07
City firm IG has just launched a new referendum barometer, showing how investors expect June’s vote to pan out.City firm IG has just launched a new referendum barometer, showing how investors expect June’s vote to pan out.
And it shows that the In campaign are expected to breeze home, although the odds have narrowed.And it shows that the In campaign are expected to breeze home, although the odds have narrowed.
According to IG:According to IG:
The data currently shows IG clients are still overwhelmingly predicting Britain is likely to remain in the EU at 67%. The likelihood of the UK leaving the EU has, however, risen 2% to 33%.The data currently shows IG clients are still overwhelmingly predicting Britain is likely to remain in the EU at 67%. The likelihood of the UK leaving the EU has, however, risen 2% to 33%.
UpdatedUpdated
at 2.08pm GMTat 2.08pm GMT
1.53pm GMT1.53pm GMT
13:5313:53
The pound is also losing more ground against the euro.The pound is also losing more ground against the euro.
It has lost 1.25 eurocents so far today,or around 1%, to trade at €1.2774. That’s only its lowest point since last week, though.It has lost 1.25 eurocents so far today,or around 1%, to trade at €1.2774. That’s only its lowest point since last week, though.
1.47pm GMT1.47pm GMT
13:4713:47
German’s Deutsche Bank isn’t happy with Boris today.German’s Deutsche Bank isn’t happy with Boris today.
Their chief investment strategist, Dr Ulrich Stephan, has tweeted that Brexit would be bad for Britain.Their chief investment strategist, Dr Ulrich Stephan, has tweeted that Brexit would be bad for Britain.
#Brexit: London Mayor #BorisJohnson sides with the exit campaign. Financial centre and economy would be the losers. #DrStephan#Brexit: London Mayor #BorisJohnson sides with the exit campaign. Financial centre and economy would be the losers. #DrStephan
Deutsche Bank employs around 8,000 people in London, and another 1,500 in Birmingham.Deutsche Bank employs around 8,000 people in London, and another 1,500 in Birmingham.
12.48pm GMT12.48pm GMT
12:4812:48
Pound hits lowest level since 2009Pound hits lowest level since 2009
Breaking News: The pound has just hits its lowest point against the US dollar in almost seven years.Breaking News: The pound has just hits its lowest point against the US dollar in almost seven years.
Sterling has extended its losses, and just traded below $1.406 against the US dollar.Sterling has extended its losses, and just traded below $1.406 against the US dollar.
That’s the lowest level since March 2009.That’s the lowest level since March 2009.
The pound has now lost over three cents today, tumbling by over 2.3%, as Boris Johnson’s decision to back the Out campaign continues to cause shockwaves through the international currency markets.The pound has now lost over three cents today, tumbling by over 2.3%, as Boris Johnson’s decision to back the Out campaign continues to cause shockwaves through the international currency markets.
As this chart shows, the pound is its weakest since David Cameron came to power in May 2010.As this chart shows, the pound is its weakest since David Cameron came to power in May 2010.
Today’s selloff is still the worst since the 2010 general election (which delivered a hung parliament).Today’s selloff is still the worst since the 2010 general election (which delivered a hung parliament).
UK pound now -2% today, on course for its biggest loss since 2010 general election. pic.twitter.com/3h7rmlkETKUK pound now -2% today, on course for its biggest loss since 2010 general election. pic.twitter.com/3h7rmlkETK
Are we allowed to say Sterling Crisis now?! https://t.co/zdkjHlXTNCAre we allowed to say Sterling Crisis now?! https://t.co/zdkjHlXTNC
Today the £ is having its 35th worst day against the dollar since the currency floated in 1971.Today the £ is having its 35th worst day against the dollar since the currency floated in 1971.
UpdatedUpdated
at 12.52pm GMTat 12.52pm GMT
12.38pm GMT12.38pm GMT
12:3812:38
Bill O’Neill, head of the UK Investment Office at UBS Wealth Management, has predicted that the Leave campaign will soon run out of steam, despite the Boris bounce.Bill O’Neill, head of the UK Investment Office at UBS Wealth Management, has predicted that the Leave campaign will soon run out of steam, despite the Boris bounce.
“We expect UK markets to be volatile over coming days as the campaigns step up a gear and investors adjust to the prospect of a referendum four months from now, but our base case remains that the UK population will decide to remain in the EU.“We expect UK markets to be volatile over coming days as the campaigns step up a gear and investors adjust to the prospect of a referendum four months from now, but our base case remains that the UK population will decide to remain in the EU.
Our Brexit probability remains at 30% as we monitor the public response to the agreement with other EU members.”Our Brexit probability remains at 30% as we monitor the public response to the agreement with other EU members.”
12.24pm GMT12.24pm GMT
12:2412:24
Jill TreanorJill Treanor
Douglas Flint, chairman of HSBC, has warned that there will be a “heightened risk of uncertainty” if Britain votes to leave the EU.Douglas Flint, chairman of HSBC, has warned that there will be a “heightened risk of uncertainty” if Britain votes to leave the EU.
Flint said:Flint said:
“Every business in the UK would be reviewing its supply chain, legal agreements and its licences”.“Every business in the UK would be reviewing its supply chain, legal agreements and its licences”.
He said the UK had a disproportionately large number of companies headquartered here and “that period of uncertainty would be very damaging”.He said the UK had a disproportionately large number of companies headquartered here and “that period of uncertainty would be very damaging”.
The bank has already said that the referendum or any vote to leave would not make it revisit its decision to remain headquartered in London, where it has been based since 1992.The bank has already said that the referendum or any vote to leave would not make it revisit its decision to remain headquartered in London, where it has been based since 1992.
Chief executive Stuart Gulliver said that the broad impact on the UK would come from the fact that the EU is the country’s largest trading partner. But Gulliver said he did not expect London’s predominance as a foreign exchange trading market to be damaged.Chief executive Stuart Gulliver said that the broad impact on the UK would come from the fact that the EU is the country’s largest trading partner. But Gulliver said he did not expect London’s predominance as a foreign exchange trading market to be damaged.
12.22pm GMT12.22pm GMT
12:2212:22
Citi says Brexit is more likelyCiti says Brexit is more likely
Investment bank Citi has just hiked its prediction for Brexit to between 30% and 40%.Investment bank Citi has just hiked its prediction for Brexit to between 30% and 40%.
They took the move after Boris Johnson and Michael Gove (another senior Conservative) both backed the Out campaign over the weekend.They took the move after Boris Johnson and Michael Gove (another senior Conservative) both backed the Out campaign over the weekend.
That’s up from 20-30%, suggesting a greater chance that Britain leaves the EU....That’s up from 20-30%, suggesting a greater chance that Britain leaves the EU....
....or perhaps just greater uncertainty over the whole thing.....or perhaps just greater uncertainty over the whole thing.
Bank ups Brexit probability from 'Not Sure' to 'Mmm Dunno But A Bit More Than Not Sure'. Next stop: 'Coin Flip'Bank ups Brexit probability from 'Not Sure' to 'Mmm Dunno But A Bit More Than Not Sure'. Next stop: 'Coin Flip'