UK Strategy: Pricing out referendum risk? – Deutsche Bank

By FXStreet Jack Di-Lizia, Strategist at Deutsche Bank, suggests that the upcoming EU referendum continues to represent a significant driver of risk dynamics.

Key Quotes

“However, with the referendum now less than 5 weeks away the market has shown signs of increasingly pricing out the likelihood of a Brexit across a range of financial market variables.

Over the past week, a shift in the latest opinion polls towards a stronger lead for remain together with bookmakers’ implied probabilities underlining a clear lead for “Bremain” has helped drive more hawkish front end pricing, a tightening in basis markets and an appreciation in sterling.

From next Friday (27th May) we enter the pre-referendum “purdah” period, restricting the ability of those connected to government from campaigning for either outcome. This reduction in campaign noise should help consolidate implied probabilities around current levels but the clear risk remains that polls may swing back in the final weeks to the vote.

UK data this week continued the recent theme of softness, with inflation showing signs of payback from last month’s higher print while the latest employment report showed wage growth slowing. Although referendum uncertainty was likely at play, some of the slowdown in wage growth over March may also have …read more

Source:: FX Street