LONDON: Sterling skidded over 1 percent against the dollar on Tuesday to hit its lowest level in two months, after another opinion poll put the "Leave" campaign clearly ahead just nine days before a referendum on whether Britain should stay in the European Union.
The latest survey, from market research company TNS, gave British support for leaving the EU a seven-point lead, adding to a string of polls that put the Brexit campaign ahead.
Betting markets, in response, raised the chances of the country voting to leave the EU, causing anxiety among investors.
The implied probability of a vote to remain inside the bloc fell to around 60 percent on Tuesday, down almost 20 percentage points from last week, according to Betfair. Media tycoon Rupert Murdoch's mass-circulation Sun newspaper called in its Tuesday edition on readers to vote to quit the 28-member EU.
Many analysts believe a Brexit vote on June 23 would hurt the economy and send sterling tumbling, while a vote to stay would be likely to drive the currency sharply higher.
Sterling fell to as low as $1.4097, after the TNS poll, down 1.1 percent on the day and its weakest since mid-April. Against the euro, though, which was weaker against most other currencies, the pound inched down only 0.2 percent to 79.43 pence.
"It (Brexit risk) is becoming a much broader issue than just sterling weakness," said RBC Capital Markets strategist Adam Cole. "What we're seeing is the still-rising UK exit risk playing out more in a global risk-off move." Against the safe-haven yen, sterling fell as much as 1.5 percent, to 149.24 yen, its lowest level in nearly three years.
Brexit worries overshadowed inflation data. Consumer prices rose 0.3 percent in May compared with a year ago, slightly below forecasts for a 0.4 percent rise.
Long-dated gilt yields fell to record lows, tracking German Bund yields, with market expectations growing that the Bank of England may cut rates if Britain opts to leave.
The BoE meets this week and while there are no expectations of a move, there is focus on what policymakers think.
"As always the minutes (of the BoE meeting) will be scrutinised, especially for anything more on the impact of a possible Brexit vote on the economy," said Simon Smith, chief economist at FxPro.
THINNER VOLUMES
Brexit has dominated the market since late last year, driving a trade-weighted decline of more than 10 percent in sterling since late November. Britain's hefty current account deficit -- 7 percent of output in the last quarter of 2015 -- makes the economy, and the currency, vulnerable to any pull-back in investment flows.
Speculators ramped up bets at the fastest pace in nearly five years in the week to June 7 with net short positions valued at nearly $6 billion, the highest in three years.
Hedge funds and asset managers have sought to protect their exposure to UK markets through derivatives but with hedging costs at record highs , they are becoming increasingly prohibitive.
As a result, volumes are thinning both in the options and spot market, leading to further volatility.
"I am happy to trade now, but I will be on the sidelines on June 23," said a spot trader, adding he would be cutting his short bets in the next few days.
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