Brexit, Sterling and the Stock Market

If you want to know how a Brexit could affect the stock market and the Sterling, you just need to look at the polls. Every time new data is released and every time the pollsters record a swing in one direction or another, the markets react accordingly.

In May, for example, an ICM poll showed a significant lead for the vote to remain and the markets stayed relatively stable as a result. However, just a few weeks later their polls had swung the other way, with the “leave” vote nudging ahead. At this point, Sterling and Gilts suffered. The former recovered ground briefly, but it dipped even further after that.

To the Stay campaign, this was evidence that a Brexit would be bad news for the economy of the United Kingdom, but to the Leave campaign it was nothing to worry about. And in a way, they were right, as the June loss merely returned the Sterling to levels it had reached in March and overall the drop was a mere 0.2% against the US Dollar.

The FTSE 100 is also reacting negatively to the potential of a Brexit, falling by 1.1% on the day that the leave vote topped the ICM poll. But as expected, this was ignored in some circles and exaggerated in others.

The key thing to remember is that investors will decide the markets, and not campaigners. If those investors are worried that exiting the EU will cause the economy to suffer and they act accordingly, then the markets will be strained and will continue to fall. In fact, many hedge-fund managers are already placing their bets on such an outcome.

What Damage Will a Leave Vote Do?

It’s hard to say how badly the markets and the Sterling will be hit if the United Kingdom does vote to leave the European Union. In fact, we can’t even be sure that a leave vote would cause the UK currency to suffer, at least not over the long term. The Stay campaigners will tell you that it will definitely suffer, whereas the Leave campaigners will disagree, labeling such comments as scare tactics.

Scare tactics is pretty much the buzzword of the Brexit debate. It has been a mass of contradictory “evidence”, of fear-mongering and confusion. Both sides are as guilty as each other and because of this, it’s no surprise to learn that many voters are still undecided. In all polls the undecided voters are enough to swing the vote either way, and it is these voters that both parties will be hoping to convince.

This referendum will change the face of the UK’s economy for years to come. It might be a positive change, it might be a negative one. No one can really say for sure right now, but in just over a week, we’re going to find out.

Anyway, according to some analysts, Brexit could cause gold price to soar...