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Sterling drops as “Leave” campaign leads

• Posted by Shyam Gokani in Bank of England, Brexit, Currency, David Cameron, Dollar, Economy, EUR, GBP, Mark Carney, Referendum, Sterling, UK
• June 6, 2016
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Sterling trade-weighted index fell 1 percent to hit a three-week low today, while the cost of hedging against swings over the coming month traded at its highest since late 2008 on growing concerns over whether Britain will stay in the European Union.

Polling firm TNS said on Monday that the campaign to get Britain out of the European Union had a 2-point lead over the “Remain” campaign, while a YouGov poll for ITV showed that the “Leave” campaign had a 4-point lead.

An ICM poll released an hour ago also shows “Brexit” in the lead.

Bookmakers shortened their odds on Brexit in response, with betting website Betfair putting the chances of a vote to leave at 30 percent on Monday. The odds were at around 27 percent at the start of last week.

The polls are likely to make people rather uneasy and we can see that quite clearly today in the pound.

With both sides likely to step up their game over the next couple of weeks, I imagine we’ll see a lot more volatility in the pound and the closer the polls get, or if ‘Vote Leave’ continues to push ahead, the pound may find itself back towards April’s lows before too long.

The sharp rise in hedging costs comes as the spot currency has been weighed down since late last year by worries that the vote on EU membership could lead to Britain leaving the bloc.

A number of analysts have warned the pound could endure a drastic drop, possibly as low as $1.20, should Britain leave the EU on 23 June.

UK economic date this week will release the Industrial, Manufacturing and Construction production from Wednesday through to Friday. Analysts are expecting all three bits of data to be weaker than previous which could also contribute to the Sterling weakness.

 

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