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Last day before EU referendum – expect volatility

Last day before EU referendum – expect volatility

Sterling reached its strongest level of 2016 against the Dollar yesterday as Cable peaked at 1.4780. This was thanks to the markets pricing in an increased chance of a “remain” vote tomorrow and public sector borrowing data printing better than expected.

The news throughout the day was dominated by EU referendum talk again, and yesterday evening there was a large debate at Wembley, which some of you may have watched. GBPEUR managed to maintain above 1.3000 throughout the European trading session and opens this morning at 1.3029.

With the EU referendum just one day away, expect choppy trading conditions for Sterling. Due to extreme levels of uncertainty in the market, traders are being encouraged to lock in rates today before potential 10%-15% market swings on Thursday and Friday. With no key data today from the UK, the EU referendum will drive the market.

In the US, Federal Reserve Chair Janet Yellen testified in front of Congress. As expected, she deviated little from the rhetoric heard in last week’s Federal Open Market Committee statement. She reiterated that the Fed is closely monitoring the strength of the labour market, inflation and global events. “Global events” is being interpreted to include our EU referendum. There were no hawkish elements in the testimony, but these may return once the UK referendum has occurred.

Data-wise, the June US Philadelphia non-manufacturing Fed index strengthened to 10.8 for June from the previous 4.6, with a robust employment component. Sterling had reached its highest levels this year against the Greenback on Tuesday morning. However, the Dollar bulls did fight back over the course of the day to come out on top against the Pound. GBPUSD opens this morning at 1.4654, a gain of 0.28% from Tuesday’s open.

In the Eurozone, low yields and increased risk appetite caused a sell off of the single currency against its rivals. The German ZEW report beat expectations, although the ongoing focus on the UK referendum meant that the impact on the currency was minimal.

European Central Bank (ECB) President Draghi testified to the European parliament where he stated that monetary stimulus had increased further following the start of the corporate bond buying programme. He was confident that inflation would rise and repeated that banks would take further action if necessary to counter additional economic shocks.

Data to Watch: 3:00pm EUR Consumer Confidence. USD Fed Chair Yellen speaks. USD Existing Home Sales.

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