OECD Brexit Report Hurt Pound Sterling (GBP) Forecast Yesterday

June 1, 2016 - Written by John Cameron

STORY LINK OECD Brexit Report Hurt Pound Sterling (GBP) Forecast Yesterday

The Pound dipped notably yesterday, although it has managed to appreciate today on account of a Labour speech supporting the 'Remain' vote.

The situation remains grim for Sterling, which has to rely on a triple-positive in PMI data over Thursday and Friday if it is to have any hope of recovering before the weekend.

Shinzo Abe Announcement Unable to Support Equity Markets

The overnight news that Asia’s second largest economy has postponed its proposed sales tax hike has done little to improve global investor sentiment so far today. Japanese Prime Minister Shinzo Abe announced that the rise in his nation’s sales tax from 8% to 10% - a move which was initially due to take place last Autumn - will now not come into effect until the latter part of 2019.

However, Japanese equities traders were far from convinced that this significant delay will make much odds – Tokyo’s benchmark Nikkei 225 index slumped during the overnight session, closing down by some 1.62%. European share markets followed suit when they re-opened for business this morning; at the time of writing, London’s headline FTSE 100 index was trading down by almost 1.0%, while the euroland’s bourses were trading into the red by a similar amount.

Risk Sentiment to Drive AUD, NZD and ZAR Exchange Rates

FX insiders suggest that if the shift out of risk continues when New York opens for business shortly, then the risk-driven Australian Dollar (currency : AUD), New Zealand Dollar (currency : NZD) and South African Rand (currency : ZAR) may give up some of the considerable gains which they have recorded during the past 24hrs.

OECD Report Weighs on Sterling (GBP) Demand

Elsewhere, the Organisation for Economic Co-operation and Development (OECD) has issued another warning of the major downside for the world economy should the UK vote to leave the European Union later this month. A report published by the OECD earlier forecast that, ‘the weaker UK economy, as well as possible new restrictions after exit from the European Union, would lower net migration inflows, adding to the supply-side challenges by reducing the size of the labour force.’

The OECD report went on to state that, ‘some of these effects could be offset by reductions in domestic regulatory burdens, but the overall net effect on living standards would be strongly negative. By 2030, UK GDP could be over 5% lower than otherwise if exit had not occurred.’

While major institutions continue to publish such dire warnings, the outlook for the Pound Sterling is forecast to remain subdued.

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TAGS: Australian Dollar Forecasts New Zealand Dollar Forecasts Pound Sterl Forecasts