Sterling slides after polls show ‘Out’ camp moving ahead

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Published: May 31, 2016 9:53:51 PM

Sterling fell to a one-week low on Tuesday, hurt by month-end selling and polls showing support for those who want Britain to leave the European Union is rising, adding to growing uncertainty about the June 23 membership referendum.

Sterling fell to a one-week low on Tuesday, hurt by month-end selling and polls showing support for those who want Britain to leave the European Union is rising, adding to growing uncertainty about the June 23 membership referendum.

A telephone poll conducted by polling firm ICM showed 45 percent of respondents favoured leaving the EU compared with 42 percent who said they would vote to stay in the bloc.

A separate weekly online poll by ICM published simultaneously showed voters favoured Britain leaving the EU by 47 percent to 44 percent. Last week’s ICM poll put the two camps neck and neck at 45 percent.

“The latest polls have hit sentiment and are driving down sterling,” said a spot trader in London.

Both polls came after an ORB poll for the Daily Telegraph showed support for Britain to stay in the EU was at 51 percent, five points ahead of the leave camp but down from a 13-point lead a week ago.

Sterling fell almost a whole U.S. cent after the polls were released, to $1.4547, from $1.4640 beforehand and down 0.7 percent on the day. The euro rose to a one-week high, trading at 76.72 pence, up 0.8 percent on the day, with volumes picking up after a UK public holiday on Monday.

The latest polls came after a series of surveys last week showed the “Remain” camp opening up a lead over those favouring Brexit. The pound climbed to its highest in three and a half months against the euro and a three-week high against the dollar .

“Direction (for the pound) will continue to come from polling data and the dollar over the next 24 hours,” said Tobias Davis, head of corporate treasury sales at Western Union.

The dollar was on track for its best monthly performance against a basket of currencies in six months. It was buoyed by expectations that the Federal Reserve will raise interest rates soon, after Fed Chair Janet Yellen suggested on Friday rates may go up in coming months.

Many doubt the Fed will raise interest rates in June, given the uncertainty from the British referendum. Fed officials have flagged it as a risk factor with a potential exit likely to have an impact on global growth and trade.

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 that as investors price out chances of an interest rate cut that some were factoring in if Britain opted to leave.

British government bonds rallied after the latest polls, with September gilt futures almost entirely erasing the day’s losses, as traders bet on the increased chance of slower growth and a longer wait before the Bank of England raises interest rates.

The spread in yield between 10-year gilts and German Bunds tightened by 2 basis points after the news to stand at just over 129 basis points.

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