Investors are anxiously awaiting the outcome of tomorrow’s British referendum on whether the country should stay in the European Union or leave.
The result could have a profound impact worldwide, potentially sending financial markets to the most turbulent 24 hours in nearly 25 years.
The voting will end at around 5 a.m. on June 24 Hong Kong time. The result will be announced about four hours later.
If Britain leaves the EU, it would cause great volatility in currencies, equities and bonds, as well as test the world’s financial infrastructure, including IT systems, trading platforms and clearing houses.
Reports say many foreign exchange brokers have raised their margin requirements in response to increasing market volatility and that senior officials of Britain’s central bank will be on stand by should there be any market chaos.
Bank of England governor Mark Carney said the central bank will not intervene in the currency market but will take all necessary steps to ensure order.
US Fed chairwoman Janet Yellen warned that a Brexit vote might rock global financial markets, adding she might delay the next rate hike.
Meanwhile, George Soros wrote in an op-ed in The Guardian that sterling might crash at least 15 percent, even 20 percent, if the Brexit vote wins.
Soros famously broke the British central bank on Sept. 16, 1992 when he bet against the pound in what has come to be known as “Black Wednesday”.
Also, some big banks are predicting that sterling might fall to a record low of 1.200 against the US dollar if Britain leaves the EU.
The British unit has been fairly shaky in recent weeks after polls showed see-sawing support for and against Brexit.
Sterling was down to 1.401 against the greenback last week.
The killing of British lawmaker Jo Cox, a vocal advocate for Britain remaining in the EU, caused public outcry but that did not stop sterling soaring to 1.4781 on Tuesday, the highest in more than five months.
The last two polls suggest the “stay” camp has taken the lead. Betting company Betfair said the bets implied the probability of a “remain” vote at 78 percent compared with 60 percent on June 16.
Sterling tested the upside of 1.47 against the US dollar on Tuesday, the third time it hit the 1.47-1.48 range since May.
It could trade much higher if it manages to break the range.
The currency is facing strong resistance at 1.495 to 1.500. If the Brexit vote wins, the unit might fall to 1.463 to 1.450.
The euro rose in tandem with sterling to 1.1382 on Monday.
It looks like Britain might decide to stay in the EU after all, but other EU members might also call for a vote in the future.
Italy’s anti-establishment party, which won a landslide victory in local elections, is proposing a referendum on the country’s EU membership.
The euro has been slipping against the dollar since May, tumbling to a two-month low of 1.1096, but it has managed to stay above the 250-day moving average.
It might face further downside to 1.100 or 1.080 if it fails to defend that level. The resistance level is 1.140.
This article appeared in the Hong Kong Economic Journal on June 22.
Translation by Julie Zhu
[Chinese version 中文版]
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