Sterling ended the week on a high following the tragic killing of pro-European Union British law maker Jo Cox as both in and out camps suspended their campaigns. The implied probability of a remain vote rose to 67 percent on Friday after falling as low as 60 percent early on Thursday according to Betfair. The markets perception of Brexit probabilities may have been reduced as a result of the incidents on Thrusday, however this is going to have limited impact or sustainability unless it is followed through by polls released in coming dates.
Traders are indicating volumes have fallen with many investors trying to close out their positions that were placed on a weaker pound in a bid to limit their exposure to an instantaneous 10-15 percent jump after a remain vote.
Japanese retail investors, collectively nicknamed Mrs Watanabe are said to be building huge positions in GBP as sterling is quite cheap at the moment being at historic lows. As a result, with the market being so unbalanced in favour of long GBP positions, a leave vote could trigger a high stop loss and drive steep falls and large swings in the market. With polls closing at 10pm UK time, Japanese investors could be amongst the first to react to the news on Friday and set the tone for other markets especially as sterling trading in Tokyo is far less liquid than that in the USD; Mrs Wantanabe’s sell offs could add fuel to the fire on the expected volatility on Friday morning.
At the Ecofin meetings on Friday, there were many talking points regarding the current status of the EU and the looming threat of a Brexit. In light of this, German finance minister Wolfgang Schaeuble made an impassioned plea for a stronger European Union. Although Schauble did not directly mention Britain; he said ‘no country in Europe would cope with the challenges of the 21st century on its own’ he also went on to say ‘we should preserve strength in such times as opposed to destroying it’, echoing sentiment from many European leaders and institutions urging Britain to stay.
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