Brexit poll sends Sterling lower, markets await US Fed meeting

Matthew Ryan16/Mar/2016Currency Updates

Both UK and European businesses were given a lot to consider yesterday after a fresh opinion poll suggested that the ‘out’ campaign has a narrow lead ahead of this summer’s EU referendum.

Over the past few weeks we’ve seen Sterling being heavily impacted by Brexit concerns and yesterday was no exception, with the Pound depreciating across the board.

We would expect the Pound to suffer a sharp depreciation in the immediate aftermath of an exit from the EU, of roughly 10% against the US Dollar and 5% versus the Euro.

Sterling volatility will likely remain high leading up to this summer’s referendum. However, the possibility of a Brexit needs to be considered and the risk mitigated by UK businesses exposed to international currencies.

Today all eyes will be on the Fed’s interest rate decision and the tone of Janet Yellen’s statement following the announcement. The economic slowdown in key emerging markets since the turn of the year, together with wobbliness in financial markets, has led many economists to push back their expectations for the timing of the Fed’s next rate hike. The market is now pricing in just one hike in the whole of 2016.

While we don’t expect the Fed to hike, we believe that the Federal Open Market Committee will take on a more hawkish tone than is currently being priced in by the markets. Core inflation is back on target, the labour market is strong, while global financial markets have stabilised. A hawkish tone and accompanying ‘dot plot’, which shows where each member of the FOMC expects rates to be at the end of each year, could open the door to a US rate hike as early as April. This scenario could provide solid support for the US Dollar throughout the remainder of the week.

We’re observing businesses either protecting levels above 1.40 or making the most of a depreciating movement in cable to lock in lows.

Major currencies in detail:


The Pound fell 0.75% against the US Dollar and 0.8% versus the Euro on Tuesday, with concerns over a possible UK exit from the EU stealing headlines.

The overnight poll issued by ORB gave the ‘out’ campaign the edge by 49% to 47%, which weighed on the Pound during morning trading. A recent average of polls suggests that the vote in June could be too close to call. Brexit concerns have already sent the Pound over 4% lower against the US Dollar this year.

Chancellor George Osborne’s Budget Statement at 12:30 UK time today could receive some attention, especially if harsh austerity measures are announced, which would prove a GBP negative.

The latest UK labour data this morning could also provide some volatility ahead of tomorrow’s Bank of England meeting. Wage growth and unemployment figures will move the Pound if we see any significant surprises. A soft labour report could also open the door to a more dovish Bank of England statement on Thursday.


The Euro was range-bound throughout trading on Tuesday, ending 0.1% lower against the US Dollar following a lack of any major announcements.

The latest inflation figures in France and Italy were underwhelming, with both countries remaining in deflation despite the ECB’s large-scale easing measures.

Elsewhere, Eurozone-wide employment ticked upwards in the final quarter of the year, according to data from Eurostat. Employment increased by 0.3% on the previous quarter and by 1.2% on a year previous in another sign of improvement in labour market conditions since unemployment fell to a four-year low of 10.5% in December.

With no economic data out of the Eurozone today, attention will be firmly fixed on the Fed announcement this evening.


Underwhelming economic data in the US caused the Dollar to end the London session 0.1% higher against its major peers on Tuesday.

Retail sales remained in negative territory yesterday, reigniting concerns of a US economic slowdown. Despite performing above expectations, sales fell by 0.1% in February, with the figure for January also revised down sharply to -0.4% from -0.2%.

Producer price growth came in below expectations. Headline producer prices printed flat in the year to February, having fallen by 0.2% in the month and suggesting that inflationary pressure in the US remains modest.

US inflation figures at 12:30 UK time today are expected to show a modest decline in the headline rate of price growth. The main event, however, will be the Fed’s rate decision at 18:00 UK time and press conference 30 minutes later.


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Written by Matthew Ryan

Strategy Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.