Hopes of a sterling bounce after a Bremain vote likely to be dashed, Pantheon says
Hopes that sterling will bounce back to its previous levels against the US dollar around $1.57 after a potential UK vote to remain in the EU will likely be dashed, said Pantheon Macroeconomics.
Sterling, traded down 0.33% to $1.4454 at 17:04 BST on Monday, from a low of $1.38 in February, still remained well below its $1.57 average of the last five years, said Pantheon.
It added uncertainty about the outlook for the UK currency remained elevated due to the risk of a Brexit referendum outcome over a Bremain return -- respectively to exit or remain in the EU.
Britain votes on 23 June to decide whether it will continue in the single-currency bloc, or leave. An increasing number of evidence suggest the vote will be in favour of remaining.
The latest Opinium/Observer referendum poll puts the likelihood of UK remaining in the EU at 44%, four points ahead of so-called Brexit group at 40%, The Guardian reported. The poll showed an increasing number of Tory voters were now for the UK remaining in the EU.
"But," said Pantheon's chief UK economist, Samuel Tombs, "hopes that cable will bounce back to its previous levels, after a vote to remain in the EU, likely will be dashed.
"The expected volatility of sterling futures exceeds the highs before the last two general elections and Scotland’s referendum," he added in a research report sent to clients.
"Capital outflows, however, have been modest. Non-residents have reduced their holdings of gilts and deposits in UK banks only fractionally in the first three months of 2016.
"Foreign capital is not primed to rush back to the UK and boost sterling after a 'Bremain' vote."
Tombs drew further attention to the cable's shift down to about $1.45, from $1.50 a month ago, which was set against an increasing number of hawkish comments by US Federal Reserve officials on and around the potential for a US rate hike this year, potentially as early as June.
"This shift (in the dollar) was sparked by the revelation in the minutes of the US Federal Open Market Committee's April meeting that an interest rate rise in June is under active consideration," he said.
Tombs added that UK Treasury's Brexit-scenario estimates issued on Monday were plausible.
Treasury said Britain would enter a year-long recession with a 3.6% growth slump and 500,000 jobs lost if it left the European Union. It added that the country would suffer an "immediate and profound" economic shock of its own making.