Bank of England (BoE) Governor Mark Carney today stated that the central bank of the United Kingdom would adopt a laissez-faire stance towards the pound no matter what decision comes during the UK-EU referendum being held on Thursday, June 23, to decide whether Britain should leave or remain in the European Union. For traders, they should expect to see volatility ramp up as the decision comes closer. The vote is one of the bigger events of the year to date affecting both global politics and markets alike.
Governor Mark Carney said on Tuesday:
“(You) would not expect the Bank to stand in the way of necessary adjustment in the exchange rate…” Carney told members of parliament.
“It would be inconsistent as well to use the exchange rate for competitive purposes or other reasons that would be inconsistent with our G7 commitments.”
The BoE has said it expects sterling to fall if the country votes to leave the EU on June 23.
EU referendum poll tracker as of 22 May 2016. The poll shows a split 45/45% with 10% undecided. Courtesy: BBC
Carney said the BoE would take all necessary steps to ensure markets function in an orderly way in the event of a vote to leave the EU. Such a response would be mainly through extra liquidity operations which it announced in March, he said. Many might be thinking Swiss National Bank (SNB) Franc style move here in the GBP, however the key difference is that the SNB shock was a surprise, while the “Brexit” vote is tracked daily.
For 2016, GBP/USD’s high sits at 1.4814 from 4 Jan 16 with a low of 1.3835 on 29 Feb 16; down -0.92% YTD as we sit now around the 1.4600 mark. How low could sterling drop if the UK decides to leave the EU? What will happen if the vote comes in to remain in the EU? Right now it is too close to call and is likely to remain that way until the referendum date comes closer. YTD GBP/USD Chart, Courtesy: BarChart.