In early trading on Monday morning, the pound sterling has suffered its biggest one-day loss since 2010 as fears around a British exit, or Brexit, intensify and weigh on market confidence. In a sign of the volatility to expect in the months ahead, the value of sterling had dropped by 1.6% versus the US dollar in early-morning trading. By midday, it was back by 2% as US traders began to wake up after the weekend. Against the euro, sterling was also falling in early trading – down by 1.8% to £0.78314. Since the beginning of the year, sterling has weakened by more than 6% against the single currency and is back by more than 11% since mid-November last year.
In early trading on Monday morning, the pound sterling has suffered its biggest one-day loss since 2010 as fears around a British exit, or Brexit, intensify and weigh on market confidence. In a sign of the volatility to expect in the months ahead, the value of sterling had dropped by 1.6% versus the US dollar in early-morning trading. By midday, it was back by 2% as US traders began to wake up after the weekend.
Against the euro, sterling was also falling in early trading – down by 1.8% to £0.78314. Since the beginning of the year, sterling has weakened by more than 6% against the single currency and is back by more than 11% since mid-November last year.
This latest wave of market volatility comes after UK Prime Minister David Cameron announced 23 June 2016 as the date when the UK will vote on whether to remain a member of the EU. While a fixed date on the EU referendum after months of speculation is welcome, this morning’s volatility was caused after Lord Mayor of London Boris Johnson declared he would be campaigning for Britain to leave the EU. The move is widely seen as a major blow to Cameron and will give some momentum to the ‘‘out’’ campaign.
Significant distance
The likelihood is that in the months leading up to June 23, the market volatility is only going to increase. At present, polls show the Yes campaign ahead but not by any significant distance. Unless something dramatic changes, the opinion polls aren’t likely to shift decisively in one direction or the other, which will only serve to increase the uncertainty in the lead-up to the vote.
As different events unfold over the course of the campaign, markets will continue to jerk and react to these and fuel the volatility. Either way, the pound sterling looks set for a sustained period of weakness against the euro and other major currencies.
Should this be the case, Irish food and drink exporters will find themselves operating in more challenging market conditions throughout 2016 with much of the competitive advantages enjoyed from a strong pound sterling over the last 12 months wiped away.
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