European financial markets have finally woken up to the threat of a Brexit, with stock markets and core country bond yields declining. A UK vote to leave the EU on 23rd June would prompt greater market disruption and force the European Central Bank to take further policy action.
Elsewhere, a Brexit would pose different challenges to other European central banks. The SNB would probably face further upward pressure on its currency, forcing it to intervene more heavily in the foreign exchange market and cut interest rates. The Norges Bank would also cut interest rates, although this seems likely with or without a Brexit. The Riksbank’s response would be lessclear cut, but it might also be forced into FX intervention.
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