Jitters Send Sterling Lower

As we reported last week, the issue of the UK’s relationship with the Eurozone (which, frankly, is the bit that counts most) and the wider EU is again the topic of conversation and speculation both within the UK and in the wider world. The British PM was due to make a statement on his party’s policy on the EU today, but a crisis in Algeria involving a siege at a gas production facility has meant it has had to be postponed. Reports suggest that he may have entertained the idea of offering a referendum on membership after the next election and that he would be asking EU partners to agree to changes in the UK’s relationship with the union to avoid the UK drifting out of the club.

Cameron is probably doing little more than making noises that he knows will appeal to dissidents within his own party and a sizeable minority in the general public who have become utterly disenchanted with the EU. Leading opposition figures and voices within the junior coalition partner, the Liberal Democrats, have been quick to suggest that an EU exit would be disastrous for the UK. As we noted, leading business figures and groupings have argued strongly that Britain’s prosperity is inextricably linked to EU membership (and, in my view, ultimately Eurozone membership). Even President Obama has publicly called for the UK to remain in the EU: A White House spokesman said: "The president underscored our close alliance with the United Kingdom and said that the United States values a strong UK in a strong European Union, which makes critical contributions to peace, prosperity, and security in Europe and around the world."

Together with concerns that the UK may lose its coveted AAA credit rating in the coming months, uncertainty over the UK’s continued EU membership has generated jitters that have pushed Sterling lower against the Euro. It has dipped under the €1.20 mark for the first time since April last year and currently is trading at €1.1933. The Pound has dipped by more than 3% against the Euro since the start of the year. Whilst any potential UK EU exit would be years away, the market abhors uncertainty and forex profits are to be made in the short term on the basis of sentiment – who ever said that markets were logical?