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    UK: Final polls signal modest swing back to status quo - MUFG Sandeep Kanihama

    Lee Hardman, Currency Analyst at MUFG, notes that the pound and other high beta currencies have continued to rebound overnight driven by a further paring back of Brexit risk ahead of today’s EU referendum in the UK.Key Quotes“Final opinion polls released overnight provided further evidence of a late swing back in public opinion towards maintaining the status quo. The final Comres phone poll revealed the largest swing back towards “remain” recording support of 48% compared to 42% for “leave”. After the “don’t knows” are accounted for, “remain” would lead by 54% to 46%. Chairman of Comres Andrew Hawkins stated that “if “remain” wins, as now appears likely, it will likely be a victory lacking enthusiasm. Stronger support for “remain” was evident in the latest YouGov poll which revealed a narrow lead for “remain” at 51% compared to 49% for “leave”. Overall, the opinion polls are still signalling that the referendum result appears finely balanced. Our own weighted average of the last six phone and online poll results reveals a narrow lead for “remain” at 51% compared to 49% for “leave”.YouGov have announced that they will publish a poll showing how people have voted in the referendum shortly after polling stations close, similar to at the Scottish referendum which proved an accurate signal of the final result. The final result is expected at around or after 7am tomorrow morning. In the early hours, the results are expected to come in more in favour of “remain” which if not evident will provide an early signal that Brexit appears more likely.                        Our FX forecasts are based on the UK voting to remain within the EU. We have held this assumption throughout this year although have become less confident as the opinion polls have signalled that the referendum result appears closely balanced. On balance we still view “remain” as just the more likely outcome assessing the probability at around 55/60%.In the event of a vote to “remain”, we expect the pound to strengthen further initially as the Brexit risk premium is removed. Cable is expected to rise into the low to mid-1.5000’s and EUR/GBP to fall back towards the 0.7300-level which it averaged during the second half of last year. The Fed’s recent more dovish tone could leave it more exposed to the downside in the near-term especially against high beta emerging market currencies.However, we would caution that the risk of Brexit still remains high assessing the probability at around 40/45%. We examined the alternative post-Brexit outlook in our latest FX Focus report released earlier this week. The main implications for the FX market were that we expected the pound to decline sharply falling towards the 1.3000-level in the near-term. EUR/GBP would like rise more modestly into the mid-to-high 0.8000’s.The negative spill-over impact from Brexit on the rest of Europe should undermine the euro as well increasing the likelihood that EUR/USD will move closer to parity. The safe haven currencies of the yen, Swiss franc, and US dollar should strengthen, while high beta currencies like the South African rand and Mexican peso would be hit hard as investors retrench from risk assets.”

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