Brexit trades

  • If Britain votes to leave, a sterling sell-off is a safe bet.
  • Some analysts think the pound could lose as much as a third of its value against the dollar because of worries that leaving the EU will reduce capital inflows, increase the current account deficit and provoke a recession.
  • Michael Saunders, a Citigroup economist soon to join the Bank of England’s Monetary Policy Committee, wrote recently that a British exit would probably trigger a 15-20 per cent depreciation against Britain’s main trading partners.
  • The week of the referendum is likely to see the pound under pressure, unless the Remain camp is polling strongly.
  • The consensus view is that sterling will recover if the Remain camp triumphs. But analysts caution that any bounce could be limited because of Britain’s increasingly weak fundamentals.
  • If Britain votes to leave the EU, sterling would not be the only currency to avoid. The euro and other European currencies would probably come under pressure because of expectations that the UK’s departure would be bad for the rest of the bloc.
  • That leaves the dollar, emerging market currencies (which have already strengthened this year) and possibly the Swiss franc as the likely beneficiaries of a Leave vote.
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