LONDON: Sterling slipped on Wednesday, while the cost of hedging against sharp falls in the exchange rate over the next month rose to its highest in over seven years, on worries that the campaign for Britain to leave the European Union was gaining the upper hand.
Two surveys by polling firm ICM on Tuesday showed British voters have moved towards vote for a Brexit at a referendum on June 23. The "Out" campaign stood three points ahead in both surveys, one of which was conducted online and the other by telephone.
Bookmakers shortened their odds on a Brexit in response, with betting website Betfair putting the chances of a vote to leave at around 28 percent by Wednesday morning, having shown a less than 20 percent chance last week after several polls put the "In" camp comfortably ahead.
Sterling fell to $1.4449, its weakest in nine days, with a slightly-better-than-expected monthly purchasing managers' index (PMI) for the manufacturing sector doing nothing to lift the currency.
The PMI survey showed British manufacturing activity barely grew last month, adding to signs that the economy is slowing in the run-up to the referendum, though at 50.1 it came in slightly higher than forecasts for a contraction.
"The better-than-expected manufacturing PMI is unlikely to provide any relief to sterling, after recent Brexit opinion polls have caught a complacent market off guard," said James Reddiman, director at FX consultancy Audere Solutions.
"With the referendum three weeks from tomorrow, the pound could come under increasing downward pressure as the 'Leave' camp regains momentum."
One-month sterling/dollar implied volatility, derived from options that cover the June 23 referendum date, rose to 20.25 percent, its highest level since the depths of the global financial crisis in early 2009, and up from around 17 percent a day earlier.
The one-month euro/sterling implied volatility contract also rose to around 18.45 percent, also its highest since early 2009, according to Reuters data.
"We...expect the volatility in Cable (sterling/dollar) to continue rising in the coming days, given that polls just a few days before the vote may have a bigger market impact than they did previously," said IronFX analyst Sakis Paraskevov.
Most economists and strategists reckon a vote to leave the EU would hurt Britain's economy and send sterling tumbling. Investors reckon a current account deficit of 7 percent of national output leaves Britain very dependent on foreign inflows, with buyers of UK assets spooked by a possible exit.
Against the euro, sterling slipped to 77.20 pence on Wednesday, its weakest since May 24, and down 0.4 percent on the day.
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