Pound Leaps Most Since 2008 as ‘Remain’ Recaptures Lead in Polls

Pessimism on Europe's Economy is Overdone, Says Hatheway
  • Previous surveys showing ‘Leave’ ahead sparked market turmoil
  • Odds tracker shows chances for Brexit dropping to about 26%

The pound jumped the most since 2008, spurring a global rally in higher-yielding currencies, as polls signaled the campaign for the U.K to stay in the European Union was gaining momentum. 

Brexit Watch: The pound, the polls, and the probability of Brexit, all in one place

Sterling’s volatility diminished as surveys taken after the murder of pro-EU lawmaker Jo Cox showed the “Remain” group recovering lost ground. It was backed by 45 percent and the “Leave” campaign by 42 percent, in a poll from Survation taken June 17-18 for the Mail on Sunday newspaper.

That was a reversal of positions from Survation’s previous poll. The pound added to its gain from late last week, when campaigning for this Thursday’s referendum was suspended following Cox’s death. She was attacked June 16.

The currency’s climb started on Friday, and “polls over the weekend helped, but it still seems 50:50,” said Stuart Bennett, head of Group-of-10 currency strategy in London at Banco Santander SA. The pound “could drop strongly if next poll shows ‘Leave’ maintaining last week’s figures.”

Risk On

Sterling advanced 2.3 percent to $1.4689 as of 4:25 p.m. in London, set for the biggest gain since December 2008. That adds to its 1.1 percent increase on Friday, when it completed the first weekly advance this month.

A one-week gauge of implied volatility for the pound versus the dollar dropped to 39.5 percent from a record close of 47.87 percent in the previous session.

Hedge funds and other large speculators cut bets on a sterling decline versus the dollar, known as net shorts, in the week ended June 14 from a three-year high the previous week, according to data from the Commodity Futures Trading Commission in Washington.

“Weekend polls suggested the tragic death of Jo Cox may be shifting some support back to “Remain” -- that has helped risk sentiment a bit,” said Robert Rennie, the global head of currency and commodity strategy at Westpac Banking Corp. in Sydney. “The polls are also driving the move away from safe-haven currencies.”

Among the other currencies active on Monday as the probability of Brexit was seen to decline:

  • The euro rose 0.3 percent against the dollar, the most in more than two weeks
  • Norway’s krone and Sweden’s krona jumped at least 0.9 percent against the dollar
  • The Aussie and kiwi strengthened at least 0.8 percent
  • The yen retreated 0.3 percent, set for its first decline in seven days
  • Eastern European currencies surged, with the Polish zloty rising 0.9 percent

For a quick view of recent Brexit surveys, click here

A JPMorgan Chase & Co. index of Group-of-Seven currency volatility declined to 11.6 percent, after closing at 12.8 percent on June 14, a level unseen since December 2011.

The Bank of England and International Monetary Fund reiterated warnings last week about the economic risks of Britain quitting the world’s largest single market. The uncertainty of negotiating trade agreements after Brexit may delay investment and hiring, with some firms relocating if their business depends on access to the single market, the IMF said.

The probability of a vote to leave has declined to about 26 percent from almost 40 percent on June 15, according to bookmaker figures processed by the Oddschecker website.

A survey by YouGov Plc for the Sunday Times, a third of which was conducted before the attack, showed “Remain” at 44 percent and “Leave” with 43 percent. The pollster said it doubted the rise in backing for the EU was tied to Cox’s killing and suggested it may relate more to concerns about what Brexit would mean for the economy.

U.K. government bonds also fell for a second day as the risk of Brexit was seen receding. The yield on the 10-year gilt climbed 10 basis points, or 0.1 percentage point, to 1.24 percent.

“The markets have always been more comfortable with the U.K. remaining in the European Union, hence the boost to risk sentiment now that the ‘Remain’ camp’s campaign appears to be back on track,” Kathleen Brooks, London-based research director at Gain Capital Holdings Inc., wrote in a note.

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