LONDON: Sterling fell on Tuesday, retreating from a one-month high against the dollar, after a poll suggested supporters of Britain's leaving the European Union had overtaken those who want to remain.
The pound had rallied from a seven-year low of $1.3836 struck in late February to a one-month high of $1.4437 on Friday as markets shifted their focus from a possible EU departure to economic data and looser monetary policy from the European Central Bank.
But traders said the new poll published in the Daily Telegraph on Tuesday dragged the pound lower.
The ORB opinion poll showed support for leaving the European Union stood at 49 percent, two percentage points ahead of the campaign for staying in the EU.
Sterling fell 1 percent to $1.4148, losing ground for the second day in a row.
The euro was up 1 percent at 78.42 pence, while sterling's trade-weighted index was down 1 percent at 85.5 "The new poll has led to renewed selling in the pound," a spot trader said.
"Given the recent rise, we could see investors going back to building short positions against sterling."
Investors worry that a so-called Brexit would depress growth, push back UK rate hike expectations and threaten the huge foreign investment flows Britain needs to fund its current account deficit, one of the biggest in the developed world at about 4 percent of output.
While the latest poll gave those wanting to exit the EU the edge, bookmakers still see only a one-in-three chance Britain will quit the EU.
"The uncertainty around the credibility of polls, and the margin for error within them, means that we are very unlikely to have confidence about the outcome before the vote takes place, and I'm not going to be bullish on sterling during that period," said Kit Juckes, currency analyst at Societe Generale.
Most traders said sterling would struggle before the referendum on EU membership on June 23, particularly if labour and wage data on Wednesday signals uncertainty over the vote is worsening a slowdown in the UK economy. Finance minister George Osborne also announces his next budget on Wednesday. He has said he will announce deeper cuts to public spending to protect his plan to eliminate the budget deficit.
In a newspaper article published on Sunday, Osborne warned that China's slowdown, a fall in oil prices, interest rate changes in some countries and political instability in the Middle East meant the world was facing more uncertainties than at any time since the financial crisis.
British government bond prices rose against the backdrop of a weaker outlook for Britain's economy and jitters about Brexit.
Economists in a Reuters poll last week almost unanimously said this year's growth forecast would be revised down in the budget to be announced on Wednesday. British gilt futures were up 47 ticks at 120.29, pushing 10-year yields 5 basis points lower to 1.50 percent.
"The latest opinion poll showing increased support for Brexit has boosted gilts as investors bet the next move by the BoE will be a cut rather than a hike given rising downside risks to UK growth," Nick Stamenkovic, strategist at RIA Capital Markets.
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