To Brexit or not to Brexit?
Published June 23, 2016, 4:54 pm
Today is a big day for Britain and its future. Known to be also the biggest international event of this first half of the year, the Brexit referendum had a big impact over the financial markets and investors’ sentiment. During the past couple of weeks polls have been showing different results, for both remaining and leaving the EU, triggering high volatility on the financial markets. The uncertainty and fear of a possible Brexit has triggered another strong risk aversion, thus the safe havens like the Japanese Yen, Gold, Bonds have strongly gained against the riskier financial instruments.
What will happen next? Everyone is expecting the results from tomorrow with great interest. For better understanding of a possible impact on the Britain’s economy and especially its currency, we will need to see the pros and cons of a Brexit.
Brexit would allow Britain to regain control of its borders in order to curb soaring immigration and increase security.
Britain would no longer have to accept free movement of people from Europe.
Eurosceptics also believe that after the Brexit, Britain will take back control of its economy.
Leaving EU would allow Britain to make its own trade deals with global powers such as US or India.
The Brexit campaign argue that the EU referendum is a once in a lifetime opportunity for the UK to restore its sovereignty.
Not to Brexit!
Brexit would compromise the UK’s ability to fight cross-border crime and terrorism.
The pound would weaken strongly in the near future, while up to 820,000 jobs could be lost within two years, according to Britain’s officials.
The UK Treasury has issued a series of dire warnings, even claiming that Britain would be plunged into a year-long recession in the event of Brexit.
Europhiles argue that the UK would wield less power to act internationally outside the EU.
The Remain camp is arguing that the UK would become embroiled in lengthy trade negotiations, face more trade barriers and lose access to the internal market.
The scenario of a Brexit is possible and as some polls were showing, it has equal chances of happening as the ‘Bremain’ has. In such a scenario we are expecting the pound to lose ground against its major counterparts and investors to lose faith in the UK’s economic expansion, especially on short term. But the reality is not that bad. A positive vote for a Brexit would only give Britain a bigger leverage in negations better conditions for the country, inside the EU. And even if they will chose, after the referendum, to leave the EU by invoking Article 50, which states that “Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements”, would still take around 2 years to finalize such a process, giving enough time for both parties to adjust their economical strategies and adapt to the new context.
In our opinion if the people of Britain will vote for a Brexit, the short term impact on the pound and the capital market of UK and not only, but also for most of the riskier assets, will be a negative one. But it doesn’t mean that it will become a trend changer instantly. On the other hand if the people will vote to remain in the EU then the short term impact will be positive. Pound might rally back towards 1.600 against the US dollar and have a strong comeback against other counterparts.
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