LONDON: Sterling steadied on Friday, closing off a week of solid gains built up on the growing belief that Britons will vote to remain in the European Union at next month's referendum, thereby avoiding market volatility that would damage the pound.
A series of polls this week has pointed to the "Remain" camp opening up a lead over those favouring Brexit, lifting the pound to a three and a half-month high against the euro and a three-week high against the dollar.
Sterling is on track for its third consecutive monthly rise against the dollar, a winning streak not seen for four years. There are no major UK economic releases scheduled for Friday, and UK markets will be closed on Monday for a public holiday.
Despite the growing conviction in financial markets that Brexit will be avoided at the June 23 vote, traders are taking no chances and are hedging their bets via options. The cost of hedging against swings in sterling over the next month held steady on Friday near the seven-year high hit on Thursday.
"The spot market has followed the improvement in poll support for the 'remain' camp, but option volatility pricing remains much more circumspect," said Steve Barrow, head of G10 strategy at Standard Bank.
Sterling was little changed against the dollar on Friday from the previous day at $1.4670, while the euro slipped a little to 76.20 pence.
One-month implied volatility on sterling/dollar options remained elevated at 16 percent, the highest since March 2009.
Sterling's recent rebound ran out of steam as this week drew to a close, as traders took profit ahead of a key, long-term technical resistance level at $1.4764. That's the 200-day moving average, which sterling hasn't traded above since November.
Worries about Brexit drove the pound down 11 percent on a trade-weighted basis between mid-November and early April, when it hit a 2-1/2-year low. But it has since recovered around half of that as investors have priced out chances of an interest rate cut that some were factoring in if Britain opted to leave.
On the data front, the Office for National Statistics on Thursday confirmed the British economy grew 0.4 percent in the January-March period, as expected in a Reuters poll. Business investment fell by 0.4 percent year-on-year in the first quarter after rising 3.0 percent in the fourth quarter of last year.
Comments
Comments are closed for this article.