ID :
410540
Sat, 06/25/2016 - 09:32
Auther :

Brexit Leaves EU With Two "Sterling" Negative Headwinds

KUALA LUMPUR, June 25 (Bernama) -- The vote by the United Kingdom to leave the European Union (EU) or Brexit, and which has already roiled stock and financial markets globally, brings about more uncertainties to the region, says a research house. HSBC Global Research said it would cause political contagion risks as market participants could start anticipating similar referendums on the EU or Eurozone in countries with high levels of dissatisfaction with the economic bloc. "The countries with the most negative perceptions of the EU are Cyprus, Austria, Greece and the Czech Republic," it said in a note entitled,"What "Leave" means for FX." In the historic referendum on Thursday, 51.9 per cent or 17,410,742 voters voted in favour of leaving the EU. The vote will also have downward risks for the EU's economic performance, said HSBC Global Research. It added that the UK is a major source of demand for goods produced on the continent and is a net contributor to the EU budget. "With growth already fairly sluggish in the EU, further downward risks would suggest that the European Central Bank (ECB) would need to maintain its dovish policy even longer. "If contagion were to spread to peripheral bonds markets, the ECB might need to accelerate the frontloading of its bond buying programme to keep yields contained. This would mean that the euro would act as the main signal of stress," it said. Hence, in the near term, the euro-US$ will face significant volatility, and could push towards the lows seen earlier this year at around 1.08. Further out, a lot will depend on how discussions between the UK and the EU progress in the coming months,and the political fallout from these developments. "We expect this uncertainty to pull down the euro by a few percentage points from our prior forecasts. "We therefore now see the euro-US$ at 1.10 by year-end from 1.20 before. This shifts our Euro-British Pound forecast at 0.92 by year-end," said HSBC Research. Meanwhile, in separate statement, the Bank of England said it is prepared for market and economic volatility expected from Brexit. "We are well prepared for this. The Treasury and the Bank of England have engaged in extensive contingency planning and will not hesitate to take additional measures as required, as those markets adjust, and the UK economy moves forward," said. -- BERNAMA

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