British Pound Rises Against Major Counterparts on Referendum Day

Sterling recovered on Thursday after market participants decided to back the 'Stay' camp to win in increasing numbers

pound to dollar exchange rate 3

  • The pound to euro exchange rate is today trading at 1.3027
  • The pound to dollar exchange rate is today trading at 1.4774

The pound recovered versus the euro and the dollar on Wednesday morning as traders bought bets on the Uk staying in the EU.

Swissquote's Arnaud Masset described markets as very "optimisitic" about the EU referendum. stating that:

"Markets are very optimistic regarding the outcome of today's vote, pushing the pound to its highest level so far this year."

Beeting odds based on wieght of money not number of bets

In a report on Bloomberg TV, Ladbroke's Alex Donohue revealed that whilst more money was backing a win for 'Remain' more actual bets were backing 'Leave'.

The better odds for 'Leave' were due to the fact that although it had more individual bets, they were of a smaller size, whislt the bets to 'Remain' were fewer in number but on average much larger in worth.

"The average betsize for 'Remain' is £400, wheras the average for 'Leave' is only £70." Said Donohue, who also added that the bigger 'Remain' bets were  concentrated in London and the South East, whislt the rest of the country prefered 'Leave'.

The wide disparity in odds between the two despite being so close in polls was due to the way Ladbrokes calculated odds, which was based on "weight of money" and not number of bets.

Sterling strength at start of week ebbing away

The British pound had traded strong against the euro on Tuesday, surpassing its next target on the charts at the important 1.3000 barrier as Brexit fears continued to ease.

The stay camp gained a further from footballing legend David Beckham pledging his allegiance, especially given the timing of the Euro 2016 tournament.

Data showing an unexpected rise in Public Sector Net Borrowing (PSNB) in May of 9.7bn versus 9.5bn forecast, failed - not surprisingly - to provide sterling with any impetus higher.

The other main release was from the Consortium of British industry (CBI), which showed signs of stability in Manufacturing:

“The survey of 482 manufacturers reported that total order books strengthened slightly in the three months to June led by the food and drink sector, and motor vehicles & transport.” CBI.

Nevertheless, the data highlighted a relatively disappointing performance of exports, which had failed to increase as much as had been hoped, due to the weaker pound:

“Total export order books likewise remained unchanged, suggesting that the depreciation of Sterling has yet to have a material impact on overseas demand.”

GBP/EUR pulled back marginally, into the 1.2970-80s but it was expected to resume its ascent in time and reach up to the next target at 1.3200, just below the 200-day moving average (MA), with a move above 1.3100 providing the confirmation for the next leg up.

GBPEURJune21

The chart of GBP/USD looked even more bullish due to concerns about what Janet Yellen may say about the future path of Fed policy in testimony to Congress today, with many analysts now expecting a much shallower rate hike trajectory ever since the change in Fed member forecast visible on the less optimistic ‘dot plot’ of the June meeting. 

However, in the event, it appears that a broad-based dollar rally capped the GBP/USD pair.

The pair has seen a meteoric climb over recent days with six up-days in a row and holds onto the lion's share of its recent gains.

It has now also broken above the key 1.4770 highs and is likely to continue higher, to the next target at the 50-week moving average at 1.4830.

Lloyds Bank’s Robin Wilkin is less convinced of the bullish potential of the pair, underlining strong resistance in the 1.48-1.4880 zone:

“A test above the 1.4740/70 recent highs looks to be on the cards, but stronger resistance still sits above in the 1.48-1.4880 region. Our intra-day studies still suggest the upside should be limited for a pullback towards 1.45/1.44 in the next 24-48 hours." 

GBPUSDJune21

EUR/GBP is in a strong down-trend, which has just reached support from a legacy trend-line (blue line) at 0.7690.

In the absence of any signs of reversal and given the pair appears to be attempting to break through this trend-line we are bearish.

If it is successful in breaking lower, the next target for EUR/GBP is 1.7570, where the 200-day MA is situated, near the May lows.

A break below the 1.7645, however, would be required for bearish confirmation.

Commerzbank’s Karen Jones is much more bearish for this pair now, changing her stance from previously bullish.

She now views the 0.8117 highs as a “confirmed top.”

“EUR/GBP last week saw a strong rejection from the  .7998/78.6% retracement, and has now closed below near term support at .7736 (26th April low). This adds weight to the idea of further weakness to .7654 (March low).”

She gives her next target for closing her bearish short trades as 0.7600.

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