The day of decision is finally here for Brexit, the vote that will determine whether or not Great Britain remains part of the European Union. Regardless of the outcome of the Brexit vote, some market observers see big moves ahead for some currency exchange traded funds with an obvious candidate being the CurrencyShares British Pound Sterling Trust (NYSEArca: FXB).
Polls show mixed results, with online surveys revealing a much closer result while phone calls have suggested a lead for a remain. Sterling has acted as a barometer of sentiment in the run-up to the June 23 referendum, hitting a seven-year low against the U.S. dollar in February after the date of the vote was announced.
Most, if not all, of FXB’s 2016 struggles can be attributed to fears that Great Britain could opt to leave the European Union when a referendum on the matter is held in late June. With just over two months before that referendum, speculation is intensifying regarding how harshly the pound will be punished if Great Britain departs the European Union.
“Of course, if the market reacts unfavorably to the vote, the trendline in the $109.50 area would be the last hope to prevent a drop to back deeper into the range. The $106-handle would be a reasonable target,” reports Michael Kahn for Barron’s. “If we flip this around, gains in the British pound and especially in the euro would hurt the U.S. dollar. The dollar index is comprised of approximately 57% euro, 12% British pound and a basket of several other currencies.”[related_stories]
Earlier this year, FXB hit an all-time low as speculation intensified that Great Britain’s departure from the European Union is a real possibility. Market observers almost universally believe such an event would be pound negative. Moody’s has warned that it could downgrade U.K.’s credit rating if the country leaves the union. Some well-known asset managers and banks are chiming in, confirming that the pound and British stocks could suffer in the wake of a “Brexit.”