How Will The European Union Summit Decide The Fate Of The Pound?

The EU will hold a spring summit in Brussels from Thursday to Friday. One of the main themes of the summit is whether Britain can continue to hold consultations in the EU.

The result may affect the outcome of the referendum in Britain, which will have a significant impact on the sterling exchange rate.

Some banks predict that if the British vote to leave the EU, the pound will fall by 20% at most.

Recent polls show that the majority of the British are out of the EU.

On Wednesday, sterling / US dollar closed at 1.4291, and the exchange rate fell to 1.4235 in February 1st in the European market on Wednesday.

Bert Koenders, foreign minister of Holland, the EU's rotating presidency, hinted that an agreement could be reached at a meeting on 18-19 February.

British Prime Minister Cameron (David Camerom) has promised to hold a referendum by the end of 2017, but expects to increase the referendum this summer.

Bank of America Merrill Lynch's interest rate and foreign exchange strategy team members Kamal Sharma and Robert Wood have made an outlook on the EU summit meeting this week, and said that the outcome of the negotiations on the EU membership clause will determine the fate of the pound.

In the report, the bank wrote: "the draft of the British Prime Minister Cameron and Donald Tusk, the president of the European Union, reached the draft in February 2nd in our anticipation, raising the referendum in June 23rd to decide whether to stay in the European Union.

However, the referendum date could not be determined until the final agreement was reached, but the content of the draft indicates that the chance of reaching an agreement this week is higher. In June 23rd, it also meets the 16 week interval between the statement and the referendum.

The report also points out that, combined with task's assessment of the "vulnerability" of the agreement, the outcome of the failure to reach an agreement could be a significant blow to the pound, especially in those countries with trade surplus in the G10 currency, such as the Japanese yen, the Swiss franc and the euro.

ANZ said that for the pound, this week the European Union

It will be the key test.

The bank pointed out that British Prime Minister Cameron is the key to achieving the goal of reform.

If the EU summit made good progress, that is, to oppose Britain's withdrawal from the EU, the British referendum on the withdrawal from the EU was confirmed in June 23rd.

ANZ bank also said, "

"Euro withdrawal" will bring great uncertainty to the British economy, and it is necessary to formulate and implement a practical strategy to withdraw from the European Union, which will be bad.

Adam Cole, director of G10 foreign exchange strategy at RBC's capital market, said that although this week's agenda for EU leaders also includes other matters, the focus will be on the progress of the British renegotiation.

Cole also said that if there is any sign of agreement, it will be beneficial to the pound.

Jane Foley, currency strategist at Rabobank, said that at a summit in Brussels this week, British Prime Minister Cameron will try to reach an agreement on a package of reforms so that Britain can stay in the EU, which will also become a key factor in leading the Holland pound.

Foley pointed out that if the referendum time is scheduled for June, then

It will go through months of turmoil.

In recent reports, Goldman Sachs said: "despite recent improvements, the current account deficit in the UK is still weak.

If the abrupt and total interruption of capital inflows brought about by Britain's departure from Europe, the pound could probably fall by 15%-20% at most.

Goldman Sachs said that this means that on the basis of trade weighted, the GBP / USD will be reduced to about 1.15-1.20.

Goldman Sachs said last week that if the British referendum is out of the EU, the pound may fall to 15-20%, which could frighten foreign investors and deplete capital inflows that can make up for the current account deficit in the UK.