GBP: the epicentre of Brexit risk - Danske Bank

The GBP is very much the epicentre of ‘Brexit’ risk and there is set to be a ‘knee-jerk’ reaction either way next week, said the Danske Bank Team.

Key Quotes

“Given our spot risk premium estimates we expect EUR/GBP to decline to a 0.7500-0.76500 range under a ‘remain’ vote. Under a ‘leave’ vote it is very difficult to say just how much intraday GBP weakness there will be, but we want to stress that fundamental models do not rule out EUR/GBP rising to 0.90.”

“More importantly, irrespective of the size of the initial reaction under a ‘Brexit’ we would expect the GBP to trade at much weaker levels for a prolonged period of time. In our base case of a ‘Bremain’ we forecast EUR/GBP at 0.76 in 1M, 0.76 in 3M, 0.74 in 6M and 0.75 in 12M.”

“It is difficult to say whether the murder of Jo Cox will have an impact on the referendum outcome; we lean towards the view that it will not. The killing of Anna Lindh just a few days before the Swedish euro referendum in 2003 did not change the outcome.”