Brexit worries keep sterling pinned down to near 2-week lows

LONDON: Sterling hovered above a two-week low against a basket of currencies on Thursday, while the cost of hedging against swings over the next month traded near its highest since 2009 on concerns over whether Britain will stay in the European Union.

Traders will keep an eye on a construction sector survey due for release at 0830 GMT. Data released on Wednesday showed the manufacturing sector was barely expanding in May and economists forecast the construction sector to fare slightly better. Nevertheless, the impact from the data is likely to be limited given all the uncertainty from the Brexit vote.

Sterling has been weighed down since late last year by worries that a June 23 referendum on EU membership could lead to a Brexit. Britain's hefty current account deficit - 7 percent of output in the last quarter of 2015 - makes the economy, and the currency, vulnerable to any pull-back in investment flows.

While a YouGov poll published on Wednesday showed British voters evenly split between "Remain" and "Leave" ahead of the ballot, two surveys the previous day - one online and one conducted via telephone - showed British voters had moved towards vote to leave the EU.

Bookmakers shortened their odds on a Brexit in response, with betting website Betfair putting the chances of a vote to leave at around 27 percent on Thursday, having shown around a 17 percent chance last week after several polls put the "In" camp comfortably ahead.

Against a trade-weighted basket of currencies, sterling was at 86.7, having plumbed to 86.6 on Wednesday, its lowest since May 18. Against the dollar, sterling was slightly higher at $1.4438, having fallen to $1.4385 on Wednesday, its lowest in two weeks.

The euro was a tad higher at 77.655 pence, with traders awaiting the European Central Bank meeting for cues.

"A push higher towards 78.40 pence will probably require a stronger euro today or a new Brexit poll," said Chris Turner, head of currency strategy at ING, noting that sterling has been weighed down in recent days after polls over the holiday weekend veered towards the "Leave" campaign.

Reflecting the nervousness, the one-month sterling/dollar implied volatility -- a gauge of how sharp swings will be over the June 23 referendum date -- traded at 20.40 percent, having risen to 21 percent on Wednesday, its highest level since the depths of the global financial crisis in early 2009.