BMO, AllianceBernstein Join Pound Selloff as Brexit Risks Grow

  • Sterling halts two-week gain as polls show ‘Leave’ taking lead
  • Market underestimating chance U.K. will quit EU: BlueBay

Polls this week showing a lead for the campaign to take the U.K. out of the European Union were a cue for Steven Bell to sell the pound against the dollar, after previously trading it “on the long side.”

Bell, a London-based macro strategist at BMO Global Asset Management, which oversees about $230 billion, was not alone as sterling endured its biggest weekly slide versus the euro in more than a year. Daniel Loughney, London-based portfolio manager at AllianceBernstein Ltd., which manages about $456 billion, said his main trade into the June 23 referendum is “short pound versus euro.” A short position is a bet an asset’s price will decline.

Sterling halted a two-week rally versus the dollar over the past five days as two ICM polls released May 31 put “Leave” ahead, while an Ipsos Mori survey on voter attitudes found 58 percent of respondents didn’t think leaving the EU would affect their own standard of living.

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That was enough to embolden pound bears even as the Number Cruncher Politics website calculated a Brexit probability of just 21.7 percent. The U.K. currency’s advance in recent weeks was spurred by a poll giving the “Remain” side a significant lead.

Sentiment Swings

The pound has acted as a barometer of sentiment since the referendum date was announced in February, rising or falling depending on which side of the argument is gaining momentum.

It’s also been constrained as data show the economy is slowing, and after bets by hedge funds and speculators on more declines dropped 40 percent from their April peak. Reports due next week will show manufacturing and industrial production stagnated in April.

“I decided to sell when the second poll came out,” BMO’s Bell said. “The market has got the firepower to have another go at sterling” after short positions were cut, he said.

The pound weakened 2.7 percent this week to 78.11 pence per euro as of 5:31 p.m. London time on Friday. That’s the biggest drop since just before the U.K. general election in May 2015. Sterling slid 0.7 percent to $1.4519, its steepest weekly decline since May 6.

BlueBay Asset Management LLP, which oversees $58 billion, used the pound’s recent strength as an opportunity to sell.

“We have been running a short in pound-dollar for some time and used recent strength in the pound to add to this,” said Mark Dowding, a partner and co-head of investment-grade debt at BlueBay in London. “We still see Brexit risk as underestimated by the market.”

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