GBP/USD Rate Coiled Below 1.47, Tipped for 1.52 Following Remain Victory

The GBP to USD conversion has failed to advance beyond the ceiling at 1.47 by analysts at ING have gone through their sums and see a potential 4% surge should Remain win the EU referendum.

The British pound is consolidating ahead of what is expected to be an explosive Thursday night when the EU referendum results are made known.

The first hint of volatility should hit the markets when polling stations close and private exit polls are released.

Until then, there could be a bit of thumb twiddling.

"Trading volumes are currently light, particularly in sterling based markets like GBP/USD and EUR/GBP. I hope this is because clients are aware of the potential risks and/or they have heeded our warnings," says Adam Jepsen, founder of Financial Spreads, a spread betting firm.

Jepsen says his staff will be on call all night on Thursday to deal with an expected surge in demand to trade the pound.

The GBP/USD pair presently sits at 1.4670 - just below the cap imposed by the 1.47 level.

Technically speaking, this is a barrier that has not been broken in 2016 which suggests there is a good supply of sterling around here.

This strong supply, when combined with increased demand for the dollar following US Federal Reserve Chair Yellen's testimony before the US Senate, will ensure the market enters a period of consolidation over coming hours.

Yes, sterling has certainly got momentum on its side following the strong trade witnessed of late, but traders are in all liklihood going to sit and wait on the outcome of the looming EU vote.

"The US Dollar corrected lower in overnight trade having outperformed in the prior session. The benchmark unit snapped a four-day losing streak as Janet Yellen testified in the US Senate. The move tracked a rally in front-end Treasury bond yields, hinting that traders divined hawkish cues in the Fed Chair’s comments," says Ilya Spivak at DailyFX.

The dollar caught a bid on the verdict that Yellen was willing to look through May’s disappointing employment situation report, saying the slowdown in job creation to be transitory.

She added that inflation is still expected to rise towards 2% once global headwinds fade, opening the door for officials to proceed with cautiously raising rates.

Higher inflation is typically fought via raising interest rates. Higher interest rates attract strong currency inflows as investors seek higher yields.

This in turn pushes the dollar higher.

Not though that the impact of Yellen's testimony on global FX markets is likely to be temporary with the UK's referendum a matter of hours away. 

Yellen herself acknowledged that the vote could have significant economic repercussions, triggering volatility that impacts the US.

"Put simply, this means that if the UK opts to leave the EU, the degree of dislocation across financial markets may be so great as to materially alter the path of US monetary policy. This means that extrapolating trades out of what Yellen said before the dust settles on the referendum outcome looks dangerously premature," says Spivak.

Latest Pound / US Dollar Exchange Rates

	Live: 1.3337▲ + 0.08% 12 Month Best: 1.3789
*Your Bank's Retail Rate	1.2884 - 1.2937
**Independent Specialist	1.315 - 1.3204 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

ING Forecasting Pound to Bounce to 1.52 Following Remain Victory

Looking to potential GBP/USD trade following the EU vote ING say they forecast the GBP to USD pair to rally by around 4%.

ING argue there are three channels that could determine the scale of the GBP/USD rally in the event of Remain:

(1) GBP-specific risk – pricing out of the Brexit risk premium;

(2) global risk – improved sentiment leading to higher global equities;

(3) re-pricing of the BoE monetary policy outlook

“We have largely been assessing GBP’s path by estimating a Brexit risk premium based on where GBP/USD should ‘normally’ be trading according to our Financial Fair Value (FFV) model. While a vote to Remain should see the GBP risk premium quickly disappear, we also think that GBP’s FFV may rise as well,” says Petr Krpata at ING.

ING, based on the above, believe GBP/USD could move to 1.52 in the case of Remain winning.

Analyst Ipek Ozkardeskaya at London Capital Group has opted to look at the implied volatility readings of the options markets for guidance.

These are the levels those with an interest in the FX market are insuring against.

i.e the higher the implied volatility the wider the range of outcomes that are expected.

Ozkardeskaya says.

“According to the pricing in the spot pound market, a Brexit event could drag the GBPUSD down to 1.30. It is certainly a risk worth being hedged. On the flip side, buyers are ready to depart for a relief rally if Britain decides to remain in the EU. We do not rule out the possibility of a post-referendum bounce to 1.50/1.55 area.”

Clearly there is a lot of educated guess work being done here and we would hesitate to pick a winner.

Whatever the actual target reached, the moves in GBP over the next 48 hours should be fascinating.