GBP: ‘Brexit’ risk premium to increase again - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that they are not surprised that ‘Brexit’ anxiety is creeping back into the markets and given the low implied probability of ‘Brexit’ currently priced, they suspect that a further widening of the ‘Brexit’ risk premium is likely.

Key Quotes

“The reason yesterday was an ICM opinion poll. Part of the growing confidence of a vote to ‘Remain’ has been the steady flow of results from telephone polling in favour of ‘Remain’ with pollsters conducting studies pointing to telephone polling as being more accurate. The ICM telephone poll result yesterday had ‘Remain’ on 42% and ‘Leave’ on 45%. It is the first telephone poll we can find that has ‘Leave’ ahead of ‘Remain’.

Of course this is only one opinion poll and hence it would be premature to reach any conclusions just yet. However, it is still a dramatic shift given the last ICM telephone poll conducted in mid-May showed ‘Remain’ with a 10ppt lead; 55% to 45%. A spokesman for the UK Polling Report website also suggested that the polling being done over a bank holiday weekend may have skewed the sample. A separate poll in the Telegraph newspaper showed ‘Remain’ in the lead 51% to 46% but ‘Leave’ was up 4ppts from the previous poll suggesting some momentum in recent days toward the ‘Leave’ campaign.

The referendum is three weeks tomorrow and we expect the pound to come under increasing downward pressure as the ‘Leave’ campaign gains some momentum. There will be a number of high profile live TV debates over the closing three weeks that will give the ‘Leave’ campaign much more prominence, potentially fuelling some further positive momentum in the final stages of campaigning.”