Up or down.
Muted trading day in Asia as Brits decide on EU membership
The UK currency rallied 5.4% in the past one week as fears of Brexit eased. The sterling had dropped to a two-month low a week ago as polls showed the “Leave” campaign surging ahead, before wiping out its year-to-date loss as pro-Europeans regained the initiative.
PETALING JAYA: Asian financial markets had a relatively muted trading day as Brits voted on the future of their country’s membership in the 28-member European Union (EU).
Asian equity markets were mostly higher, while European markets opened stronger.
Today’s trading would likely mirror yesterday’s trading activity as investors wait for the outcome of the referendum, which would be known at 2pm Malaysian time.
Although still too close to call at press time, polls have shown a noticeable increase in support for remaining in the EU over leaving, a move better known as Brexit.
The rise in support has been more noticeable particularly following the murder of Labour Party member of parliament Jo Cox, who died on June 16.
Citigroup Inc analysts said in a report on June 22 that market participants would likely remain hesitant to take large directional risk ahead of the referendum because polls suggest the outcome to be a close call.
They also said Asian currencies may continue to be supported by better equity market sentiments despite a deterioration in commodity prices.
But just the hint that Britain could remain in the EU has boosted confidence in the pound sterling, which has strengthened against major currencies since late last week.
The pound sterling closed 0.025 sen higher against the ringgit at 5.939. Prior to Cox’s murder, the pound sterling had been weaker, mirroring closely the Brexit sentiments, which had been in the lead in the last two weeks. It has also strengthened against major currencies.
But investors continue to be wary, preferring to wait on the sidelines.
“It’s very, very close with huge consequences,” a currency trader said, adding that the euro/pound sterling cross-rate would be volatile when London opens for trading, speaking in reference to yesterday’s trading day.
He told StarBiz that currency traders in London had reduced their exposure because the uncertainties surrounding the referendum made it difficult to take a position. “It’s too difficult to tell and taking a position on the pound sterling today (yesterday) is just pure gambling,” he said.
Analysts have said that the pound sterling would crash if Brits vote to leave, but a strong mandate to remain would mean the pound sterling strengthening.
Pro-”Remain” politicians and most business leaders have warned Brits about the consequences of a Brexit.
The Financial Times said in a report yesterday that queues had formed at foreign exchange dealerships as City of London workers rushed to exchange pound sterling into euros and US dollars.
The publication said book maker Lad brok es’ odds implied a 74% chance of a “Remain” vote, although two other polls suggested that the “Leave” vote had a slight lead.
It noted that regulators had demanded for a strest-test from banks that showed a 20% fall in the pound sterling, while traders the publication spoke to said the volume of derivatives had risen as investors rushed to protect their positions against steep declines in currency and equities.