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Financial markets react to EU referendum

Financial markets react to EU referendum

Sterling remains up, gold prices are under pressure and UK bank shares are rallying as opinion polls suggest the UK may remain in the European Union.

Despite the the final results of the European Union referendum on EU membership unlikely to be known until the very early hours of tomorrow (24 June), financial markets saw movement today (23 June).

Two final opinion polls were published today based on interviews conducted this week that put Remain ahead.

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Populus had 55 per cent to 45 per cent in favour of remaining in the EU based on online fieldwork on Tuesday (21 June) and yesterday (22 June).

Ipsos Mori put Remain on 52 per cent with Leave on 48 per cent, after conducting telephone interviews on Tuesday and yesterday.

As the polls were published sterling slipped back in mid-afternoon trading, paring some of its storming gains that had sent it as high as $1.4947 just before noon.

In afternoon trading, sterling fell as low as $1.4788 but remained up 0.6 per cent on the day.

Markets are braced for big fluctuations in the currency given thin trading conditions ahead of the polls closing at 10pm.

Gold, which has proven popular in the run-up to the referendum, fell to a two-week low of $1,259 a troy ounce.

The precious metal had reached $1,315 this month as the polls swung towards a Brexit.

UK bank shares — which are exposed if the country votes to leave the EU — rallied, with Barclays up 2.4 per cent, while RBS gained 2.7 per cent and Lloyds 1.3 per cent.

All have outperformed the FTSE 100, which is up 1.2 per cent and has hit a two-month high.

Chris Towner, chief economist at money transfer specialists HiFX, said: “As the likelihood of a Remain result looks more likely, sterling is stable, sitting comfortably against the US Dollar and Euro.

“However, the real risk of a ‘Brexit’, and the impact this could have on the pound, means that there is less liquidity today. If we vote to stay in the EU, sterling should strengthen, taking GBP/EUR back towards 1.35 and GBP/USA to levels above 1.50.

“If we vote to leave however, the pound will most likely plummet, as it is the least likely outcome, and it will lead to extreme uncertainty, which we know the markets don’t like.”

emma.hughes@ft.com