Pound Falls Versus Euro as Cameron Said to Fast-Track Vote on EU

The pound fell to the weakest level in two weeks against the euro on speculation a referendum on whether Britain should leave the European Union will happen sooner than traders had anticipated.

Prime Minister David Cameron will hold the vote in June next year, the Independent newspaper reported on July 25, citing Downing Street officials. The government had previously only said it would take place before the end of 2017. Sterling has swung from its biggest gain since 2009 to its worst performance since May over the past two weeks as optimism about higher interest rates gave way to signs the economy is slowing.

The referendum news “has taken the gloss of sterling somewhat,” said Kit Juckes, a London-based strategist at Societe Generale SA. “Sterling has had a very strong run. Talk of an early vote can take the shine off the pound for a while.”

The pound depreciated 0.8 percent to 71.36 pence per euro as of 5:34 p.m. London time, and touched 71.61 pence, the weakest since July 13. It climbed 0.4 percent to $1.5569.

U.K. Chancellor of the Exchequer George Osborne told reporters after the article that the vote’s timing depended on enabling legislation.

Last week, sterling dropped 1.9 percent versus Europe’s single currency as a report showed U.K. retail sales unexpectedly shrank in June. It surged 3.6 percent the week before, the most since January 2009, as Bank of England Governor Mark Carney signaled a rate increase was in sight.

The case for higher borrowing costs may be boosted once again on Tuesday, when a report will show the U.K. economy grew 0.7 percent in the second quarter, compared with 0.4 percent in the previous three months, according to the median estimate of analysts in a Bloomberg survey.

Weakness Forecast

Forecasts compiled by Bloomberg see sterling weakening to $1.52 by the end of the year. Against the euro, sterling will strengthen to 69 pence per euro by year-end, the forecasts show.

“The recent weakness you’re seeing in sterling against the euro, it’s just more of a temporary blip in the ongoing trend that should be lower for euro-sterling,” said Richard Kelly, head of global strategy at Toronto-Dominion Bank. U.K. economic growth “is strong enough and has remained resilient through a number of shocks.”

Benchmark 10-year gilts halted after three days of gains. The yield was little changed at 1.94 percent and the price of the 5 percent security due March 2025 was at 126.755 percent of face value.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE