LONDON: Sterling hit its strongest level against the dollar since early May on Tuesday, having the previous session posted its biggest one-day climb since 2008, as worries receded that Britain will vote to leave the European Union in two days' time.
Two opinion polls on Monday suggested that the "Remain" camp had recovered some ground ahead of Thursday's referendum on EU membership, following the murder of a pro-EU lawmaker.
And though a third poll put those wanting to leave were ahead by a whisker, bookmakers and betting exchanges - watched closely by investors - now put the chances of a "Brexit" at around 24 percent, down from 40 percent just five days ago.
Worries that Britain could vote to leave the EU have dominated sterling for months, driving a decline of more than 11 percent between mid-November and mid-April on a trade weighted basis.
Britain's hefty current account deficit - 7 percent of output in the last quarter of 2015 - makes the economy particularly vulnerable to any pull-back in investment flows, which economists reckon would happen in the event of Brexit.
"The pound is massively vulnerable if there is a vote to leave," said Rabobank currency strategist Jane Foley, adding that sterling's current rally - around a 5 percent rise against the dollar in the same number of days - could be seen as the start of a "relief rally" on Britain staying in the EU.
But Foley added that even a vote to stay in the EU could lead to a long spell of that most disliked phenomenon, political uncertainty, unless the "In" camp secures an emphatic victory.
"A lot of uncertainty will remain, and that could mean that sterling's rally could fizzle out at some point really quite soon," she said.
Having already gained 2.1 percent versus the dollar on Monday, sterling rose as much as half a percent on Tuesay to a seven-week high of $1.4747.
Against the euro, the pound edged down 0.1 percent on the day to 77.05 pence, having also climbed more than 2 percent on Monday against the single currency - its biggest one-day climb in 7-1/2 years.
George Soros, the billionaire who earned fame by betting against the pound in 1992, said in an opinion piece published by the Guardian newspaper on Monday that a Brexit would trigger a bigger and more disruptive sterling devaluation than the fall on Black Wednesday 24 years ago.
Soros said a vote to leave could see the pound fall by at least 15 percent, and possibly more than 20 percent, to below $1.15.
"Most of near-term sterling strength is now over given the still-too-close polls and the associated uncertainty," wrote ING strategist Petr Krpata in a note to clients. "Expect sterling upside to be limited ahead of Thursday's vote."
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