Macroscope | Brexit is just as much a threat to the euro as it is to the pound
Brexit risk is weighing on the pound but it is also an additional reason for avoiding the euro, leaving the dollar to put in a sterling performance
The possibility that Britain might vote to leave the European Union (EU) on June 23, the so-called Brexit, has quite naturally unnerved the currency markets resulting in a slide in sterling but the euro should also be vulnerable.
After all, with those supporting continued UK membership of the EU arguing both Britain and the European Union are stronger together, then both sides must be, by definition, weaker apart.
So while investors might therefore sell the pound on Brexit worries, they might also decide they should sell the euro. Indeed, as Bank of England governor Mark Carney noted on February 23, referendum-related currency market activity had thus far been most pronounced in sterling’s fall versus the US dollar.
In fact there are a lot of reasons why investors might choose to sell the euro, particularly against the dollar.
For example, if Britain votes to remain in the EU, then the concessions that British Prime Minister David Cameron won in Brussels in February come into effect, and if that appears to cement the idea that the UK can take an “a la carte” approach to the EU, it is hardly realistic to expect the other 27 members of the European Union to stick to a set menu.
There are a lot of reasons why investors might choose to sell the euro, particularly against the dollar
Italy is already locked in a dispute with the European Commission over Prime Minister Matteo Renzi’s proposed 2016 budget and is pushing for changes in the euro zone’s fiscal rules to allow governments more budgetary room to try and stimulate economic activity.
