LONDON: Sterling rose on Wednesday, moving back towards a 5-1/2-month high against the dollar, as investors cut bets against the pound just a day before Britain votes on whether to remain in the European Union.
While opinion polls suggested the vote on Thursday was too close to call, the implied probability of a vote to remain in the European Union was at 75 percent, according to Betfair betting odds. It was at around 60 percent last Thursday before the murder of pro-EU lawmaker Jo Cox seemed to have somewhat shifted sentiment towards the "Remain" camp.
Yet a telephone poll released on Tuesday and conducted by Survation for spread-betting firm IG on Monday, put support for "In" at 45 percent, ahead of "Out" on 44 percent.
Sterling was up 0.4 percent at $1.4705, having hit a peak of $1.4788 on Tuesday, its highest since the first trading day of the year. It was still up 5 percent since Thursday, partly thanks to a more-than 2 percent surge on Monday, its biggest one-day gain since 2008.
Fed Chair Janet Yellen's comments on Tuesday when she stressed the outlook was uncertain and that monetary policy was "by no means on a preset course", also weighed on the dollar.
"Price action isn't overly aggressive at present, however volatility and uncertainty are omnipresent and will only get more severe," said Tobias Davis, head of corporate treasury sales at Western Union.
"No one will want to get caught on the wrong side of this, so position squaring will continue to dominate trade and liquidity will slowly dry up."
The cost of one-week sterling/dollar implied volatility, derived from an option that covers the referendum and its results, hit a record high of more than 50 percent on Friday but eased to 40 percent on Wednesday - still higher than any time during the financial crisis of 2008/09.
Swiss investment bank UBS, one of the biggest currency traders in the $5-trillion-a-day foreign exchange market, warned its clients it may fail to execute some orders on its electronic trading platform should the referendum affect liquidity or cause extreme volatility.
The uncertainty over Brexit has hurt sterling since late last year. Britain's hefty current account deficit - 7 percent of output in the last quarter of 2015 - makes the economy vulnerable to any pull-back in investment flows, which economists reckon would happen if Britain votes to leave.
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 Tuesday that a Brexit would trigger a bigger and more disruptive sterling devaluation than the fall on Black Wednesday 24 years ago.
Against the euro, the pound rose 0.1 percent to trade at 76.68, not far from a three-week high of 76.55 pence struck on Tuesday.
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