Forex Institutional Research: Commerz Bank FX Daily
Key quotes from the Commerz Bank FX report:
G10 FX Research
GBP: The campaign surrounding the EU referendum is on the home straight. In less than 24 hours the polling stations will open and the British electorate will start to decide on the membership of Great Britain in the EU. Following a veritable tug of war between the remain- and the leave-supporters over the past few weeks the outcome of the referendum is completely open again just a day before the vote. Even though the remain camp had a small lead in most polls compiled over the past few days, the leave camp had recorded a lead of up to 10% in some of the polls compiled in the previous two weeks. The fact that a YouGov poll put the leave camp in the lead again now when only two days earlier a poll by the same pollster had seen a slight advantage for the remain camp is also worrying. Even if the remain camp will go into poll day feeling slightly strengthened compared with early last week a victory is by no means a fait accompli. For Sterling to continue its appreciation trend seen over the past few days the polls would all have to record a notable lead for the remain camp today. Should the polls continue to paint an uncertain picture Sterling might even trend a little weaker again as a result of the then highly uncertain outcome of the vote.
EUR: The EUR exchange rates remained almost unchanged after the German Constitutional Court announced its verdict on the OMT programme yesterday. That is hardly surprising. After all the German Constitutional Court rejected the constitutional complaint. That means the German judges followed the verdict of the European Court of Justice – as had been expected by the majority of observers – and have given the ECB carte blanche. Of course the German Constitutional Court pointed out that the OMT programme would have to meet certain conditions, but these more or less corresponded to the criteria already given by the European Court of Justice. From the point of view of the majority of market participants this meant the German Constitutional Court had surrendered and the ECB’s monetary policy remained more or less unaffected. However, the European central bankers should not allow themselves to be lulled into a false sense of security in view of this verdict. The conditions, such as a limit to the volume of the purchases, may well be met in the case of the OMT programme (according to the European Court of Justice the fact alone that only the bonds of states, that were receiving ESM aid, were being purchased constituted a limitation). However, anyone wanting to apply the conditions to the current QE programme might reach a different conclusion. Even if the ECB were to simply raise the purchasing limit this may be interpreted negatively as the step would void the previous limit it had set. Of course it is unclear whether the Court would actually interpret the conditions so strictly. Even if yesterday’s verdict did not have any direct implication for the QE programme it nonetheless leaves a slightly bitter taste (for details please refer to yesterday’s Economic Briefing: “ECB: OMT ruling limits scope for QE”).
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