LONDON: Sterling fell more than 1 percent against the dollar on Tuesday to hit 8-week lows, after opinion polls showed growing support for Britain leaving the European Union ahead of a vote next week.
Betting markets have lowered the chances of the country remaining in the European Union, creating more anxiety among investors.
The implied probability of a vote to remain inside the bloc fell to around 55 percent on Tuesday, down more than 20 percentage points from last week, according to Betfair.
The YouGov poll for The Times put "Leave" on 46 percent support compared with 39 percent support for "Remain." Last Monday, The Times/YouGov poll showed a 1 percent lead for the "Remain" campaign.
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.
With the momentum shifting towards the "Leave" camp in the past few days, sterling fell to $1.4112, its lowest since mid-April, while the euro was steady at 79.25 amid lower volumes.
The pound was down 1.5 percent against the safe-haven yen at 149.22 yen its lowest level in nearly three years.
"With liquidity noticeably thin, expect some wild swings in the coming days, with $1.40 the next level to watch. I would expect greater degree of panic if the "Leave" margin widens in the coming days," said James Ruddiman, director at Audere Solutions, a currency broker. The 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 between mid-November and mid-April.
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.
Comments
Comments are closed for this article.