- Sterling gets relief even as Brexit campaign starts officially
- Measures of positioning still flashing red before Brexit vote
The pound, 2016’s worst-performing major currency, found some respite from its selloff this week, heading for its first increase versus the euro in more than a month.
Even so, measures of positioning are flashing red, raising the question of how long the rally will last. The premium for three-month contracts hedging against sterling losses over those protecting against gains increased this week to 4.79 percentage points, the most since Bloomberg began compiling the risk-reversals data in 2003. The Bank of England on Thursday confirmed traders’ expectations that a change in policy is unlikely ahead of the referendum on Britain’s European Union membership.
Friday saw the official start of the campaign for the vote. The prospects of a so-called “Brexit” have hurt sterling this year, pushing it down about 3.5 percent against the dollar. BOE officials considered the risk of a leave vote when they voted unanimously to hold the key rate at 0.5 percent, as predicted by economists in a Bloomberg survey.
Risk ‘in Waves’
Brexit risk “comes in waves,” said Gavin Friend, a strategist at National Australia Bank Ltd. in London. “We had a very negative last week in terms of the view with regards to Brexit,” he said, with online polls suggesting voters will choose to leave the EU, and U.K. Prime Minister David Cameron under pressure over the Panama Papers scandal. This week, with less bad news, the pound rebounded again, he said.
The pound strengthened 0.2 percent to 79.44 pence per euro as of 4:55 p.m. in London on Friday, gaining 1.6 percent versus the single currency this week, the most since the period ended March 4. Sterling strengthened 0.5 percent to $1.4219 on Friday, set for a gain of 0.6 percent since April 8.
Minutes of the BOE monetary policy meeting indicated policy makers considered Brexit risks in their decision, warning that leaving could have “significant implications” for the pound.