LONDON: Sterling was on course for its worst week against a basket of currencies in six years on Thursday, hit by a perceived rise in the chances of a British exit from the European Union and companies and fund investors hedging against it.
The cost of hedging against sharp swings in sterling over the next three months rose above 15 percent in morning trade in London, its highest since a closely fought parliamentary election in 2010.
Ructions within the ruling Conservative Party over June's referendum on EU membership, allied to the reaction to Tuesday's bomb attacks in Brussels, have been at the heart of a rise in bookmakers' odds on voters backing a "Brexit". Sterling itself weakened to its lowest against the euro since December 2014 and was down another quarter of a percentage point at $1.4079, about 2 cents above lows hit last month.
"A sizeable chunk of the move this week is related to Brexit," said Tobias Davis, Head of Corporate Treasury Sales with Western Union in London.
"You can see it in the three-month implied volatility, which has surpassed levels seen ahead of the Scottish vote on independence.
There is dollar strength in the mix, of course, as well as some position-squaring ahead of the Easter weekend." There was virtually no reaction to a retail report showing that sales fell by marginally less than forecast last month.
Trade-weighted sterling, the Bank of England's broad gauge of the pound's performance against a basket of currencies, hit its lowest in more than two years and is down 10 percent since November.
Sterling could now be on its way to falling below the 1.40 mark, an area last seen at the start of February, analysts from South African bank Investec said in a morning note.
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