Brexit Risks Rising

An ill-conceived strategy undermined by mismanagement and bad fortune is increasing the risks that the UK votes to leave the EU in June. Nearly everything that could, has gone wrong for UK Prime Minister Cameron.  

While many investors have anticipated the UK would remain in the EU, the increased risks will likely weigh on sterling, with potential for sharp losses.  Sterling is already the worst performer among the majors here in Q1. It is from 3.3% which is more than twice the loss of the New Zealand dollar, which is in “second place” with a 1.3% year-to-date loss. 

The break of $1.4230 is the first indication of that this month’s upside correction is over, and a loss of $1.4180 could spur a move to $1.40. However, barring a dramatic development, investors should be prepared for a retest of the late-February low near $1.3835. Beyond there is the crisis low of $1.35 from early-2009. A move to $1.30 cannot be ruled out. 

Today’s terrorist attack in Brussels will likely be seized upon by those who want to leave the EU for another reason. While the Brexit camp has been stressing the loss of sovereignty by being a member of the EU, immigration and border controls, have been the central to their arguments. Today’s events keep these issues front and center. 

News that US President Obama will visit the UK next month may not be as helpful as the remaining camp may have hoped. The US has called for the UK to stay in the EU. Foreign involvement plays to the Brexit camps fear of its loss of sovereignty. 

London Mayor Johnson was an EU-skeptic and the only person his formal endorsement of Brexit surprised appears to be Prime Minister Cameron.  Those that want to remain recovered. Sterling fully recovered to trade near $1.4500 at the end of last week. The departure of Ian Duncan Smith from the cabinet was another blow, but outside of the timing, Smith was also an EU-skeptic. However, it shows the deepening fissures within the Tory Party. 

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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