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Sterling at two-week low

• Posted by Shyam Gokani in Bank of England, Brexit, Currency, Dollar, Economy, EUR, GBP, Sterling, UK
• June 2, 2016
• No Comments

Sterling hovered above a two-week low against a basket of currencies this morning, 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.

Construction sector survey release9 at 0930 GMT slowed to 51.2 from an expectation of 52. Data released on Wednesday showed the manufacturing sector was barely expanding in May and economists had 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.

A drop towards 1.2750 will probably require a stronger euro today or a new Brexit poll.

Many economists expect the economy to weaken further in the second quarter. The Bank of England has said a vote to leave the EU could even tip the economy into recession.

All eyes and ears will be on David Cameron’s interview this evening on Sky News.

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