Pound Sterling hits 2016 high amid expectations Britain to stay in EU
Pound Sterling advanced to a 2016 high against the dollar on Thursday after the last sweep of opinion polls favored Britain remaining in the European Union, just as voting got underway.
Polls by ComRes, conducted for the Daily Mail newspaper and ITV television, and by YouGov for The Times newspaper in London, showed a last-minute rise in support for Britain to remain in the EU.
And while most polls have suggested the vote was too close to call, the implied probability of a vote to remain in the European Union was at 76 percent, according to Betfair betting odds. It was at around 60 percent last Thursday before the killing of pro-EU lawmaker Jo Cox seemed to have somewhat shifted sentiment towards the “Remain” camp.
Reduced Brexit fears have helped sterling gain roughly three percent so far this week, although given the vote is too close to call there is an element of caution. The level of uncertainty is embedded in the options market, where overnight sterling implied volatilities are marked as high as 125 percent amid very thin liquidity conditions. GBPOWO=R
The pound was up 0.4 percent at $1.4770 GBP=D4 after touching $1.4847, its highest this year, with pricing in the options markets indicating sterling could drop to $1.40 and beyond in case Britain votes to exit while it could climb towards $1.55 in case it opted to stay.
“The ComRes poll has given sterling a boost, but liquidity is very thin and the currency will be very volatile,” said Yujiro Goto, currency strategist at Nomura. “If polls after the vote closes suggests that “Leave” is in front, then we could see sterling drop. These are very challenging conditions.”
The polling will close at 2100 GMT, with results expected early on Friday. Pollster YouGov will publish a poll showing how people have voted shortly after polling stations close on Thursday, hoping to repeat its successful prediction of the 2014 Scottish independence vote.
Unlike the general elections last year, British broadcasters will not conduct exit polls because the margin of error for an event which has little precedent is too large.
WAIT AND SEE
A wait-and-see mood was expected to prevail through most of the day, dotted by possible bouts of volatility, as markets nervously await the British poll results.
“It will be hard for the market move until the poll results are released. The pound obviously will take center stage. But other European currencies and particularly dollar/yen also bear watching as the pair will reflect swings in risk sentiment,” said Shin Kadota, chief Japan FX strategist at Barclays in Tokyo.
The dollar was flat at 104.50 yen JPY= after moving the previous day in a narrow 104.855-104.310 range. The greenback has sagged against the yen after Tuesday’s testimony by Federal Reserve Janet Yellen was seen to have played down the chances of a U.S. interest rate increase in July.
The euro extended gains, rising 0.3 percent to $1.1330 EUR=. A slight ebb in prospects of Britain leaving the EU has helped the common currency.
Source: Reuters
