Pound Sterling Recovering from Oversold Conditions

The GBP appears to have arrested declines heading into the weekend but remains fragile as markets remains focussed on polls that show the UK's future in the European Union is anything but assured.

• GBP higher as markets gauge recent sell-off to have been overdone
• ECB says they believe the UK should vote to remain in the EU on June 23rd, say stand ready to act should markets tighten in event of Brexit

This week's GBP sell-off was deep with some significant areas of support easily melting away in the heat of the selloff.

However, there were growing concerns that the selloff was becoming overheated as probabilities of a UK exit from Euro remain low.

The leading bookmakers continue to place low probability of a UK exit, and markets will continue to take a lead from these odds.

That said, leading bookies including Betfair, Coral, Ladbrokes and William Hill have seen a rush to lay bets on the June 23rd vote according to reports.

Nevertheless, “the anticipated GBP weakness exceeded our expectation by taking  out  the  major  1.4400  support  (low  of  1.4385). While further weakness is not ruled out, the sharp drop that started two days ago are clearly over-extended and any down-move would be likely be at a slower pace and last month’s low of 1.4330/35  is not expected to come into the picture  for  now,” says analyst Quek Ser Leang with United Overseas Bank in Singapore.

Pound to Euro Rate Recovers Following ECB Event

The European Central Bank (ECB) forms the highlight for markets on Thursday the 2nd.

The euro exchange rate complex traded higher against the dollar through the event, confirming that markets liked news of an upgrade to inflation forecasts for 2016.

The ECB revised higher their 2016 inflation forecasts from 0.1% to 0.2%.

However, against sterling losses were seen confirming that the broader EU referendum driver is more important for all pairs GBP related.

On the issue of the UK’s EU referendum, President Draghi comments that the UK and Eurozone are mutually beneficial. Darghi says explicitly that it is the ECB’s belief that the UK should remain in the European Union saying both parties will benefit.

The ECB stands ready to act should financial conditions tighten significantly in the event of a UK exit from the Eurozone.