LONDON: Sterling slipped on Wednesday, while the cost of hedging against sharp falls in the exchange rate over the next month rose to its highest in over seven years on worries that the campaign for Britain to leave the European Union was gaining the upper hand.
Two surveys by polling firm ICM on Tuesday showed British voters have moved towards vote for a Brexit at this month's referendum. The "Out" campaign stood three points ahead in both surveys, one of which was conducted online and the other by telephone.
One-month sterling/dollar implied volatility, derived from options that cover the June 23 referendum date, rose to 19.60 percent, its highest level since February 2009, and up from around 17 percent a day earlier.
The one-month euro/sterling implied volatility contract also rose to around 17.95 percent, its highest since early 2009, according to Reuters data.
"Sterling remains sensitive to any new polls that place a 'Leave' vote ahead by a considerable margin," said IronFX analyst Sakis Paraskevov. "We...expect the volatility in Cable (sterling/dollar) to continue rising in the coming days, given that polls just a few days before the vote may have a bigger market impact than they did previously."
Most economists and strategists reckon a vote to leave the EU on June 23 would deal a blow to Britain's economy and would send sterling tumbling, while a vote to stay would drive sterling sharply higher.
Worries about a Brexit drove the pound down 11 percent on a trade-weighted basis between mid-November and early April, when it hit a 2-1/2-year low. But it has recovered around half of that as investors price out chances of a rate cut that some were factoring in if Britain opted to leave.
Against the euro, sterling slipped to 76.73 pence on Wednesday, its weakest since May 24, before recovering to 76.935 pence, still down 0.1 percent on the day. Against the dollar, sterling fell to $1.4450, its lowest in nine days, before recovering a touch to trade flat on the day.
The purchasing managers' index (PMI) for the manufacturing sector, due at 0830 GMT, was in focus for currency traders.
"UK data will continue to be scrutinised for evidence that referendum-related uncertainty is constraining activity, and this is particularly true of survey based-data like today's manufacturing PMI," RBC Captial Markets currency strategist Adam Cole said.
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