Pound Declines to Two-Month Low as ‘Leave’ Campaign Pulls Ahead

  • Anticipated two-week sterling volatility at record high
  • Five polls in past 24 hours show lead for Brexit camp

Brexit: What the First 100 Days Could Look Like

The pound fell to a two-month low as a series of polls showed more U.K. voters were in favor of leaving the European Union in next week’s referendum.

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

Sterling declined against all but one of its 16 major counterparts as five polls from four companies put the ‘Leave’ campaign ahead and the Sun, Britain’s biggest-selling newspaper, backed a Brexit on its front page. A gauge of the pound’s anticipated volatility over the next two weeks -- a period that includes the June 23 referendum -- climbed to the highest on record.

“Lately we are seeing some momentum for ‘Leave’ reflected across opinion polls, and that is bringing the risk back again,” said Alvin T. Tan, a London-based foreign-exchange strategist at Societe Generale SA. “The fears are much more obvious in the options space, with two-week pound volatility at record highs.”

The pound dropped 1.1 percent to $1.4119 as of 4:04 p.m. in London, after touching $1.4097, the lowest since April 14. Implied two-week volatility, which is derived from options, rose to 40.5 percent -- three times the level at the beginning of this month.

If the polls continue to show momentum for the ‘Leave’ campaign, the pound could revisit $1.39 on the eve of the vote, SocGen’s Tan said.

Sterling weakened 0.4 percent to 79.43 pence per euro, approaching an almost two-month low reached on Monday.

‘Leave’ Ahead

An online survey carried out by TNS June found 47 percent backing ‘Leave’ and 40 percent for ‘Remain.’ It’s the fifth poll in 24 hours to show the Brexit campaign ahead.

Investors see Brexit as the biggest tail risk, according to Bank of America Merrill Lynch’s regular global fund-manager survey. The pound is the worst performing Group-of-10 currency this year amid concern that a vote to leave the EU will lead to a period of economic and political instability. CMC Markets Plc joined other firms including IG Group Holdings and FXCM Inc. in raising margin requirements on pound trades on concern that a Brexit vote will lead to market turmoil.

Britain’s currency received little respite as data showed annual inflation held at 0.3 percent in May, falling short of economists’ forecasts for an increase to 0.4 percent.

BOE Outlook

Bank of England officials announce their latest policy decision on June 16. Last month Governor Mark Carney said in a scenario where Britons voted to remain in the EU, the next move in the key BOE interest rate would probably be up, while a ‘Leave’ outcome wouldn’t automatically bring about an easing because a decline in the pound would accelerate price growth.

Tuesday’s inflation data “will merely reinforce the view in the market that if there is a Brexit on June 23, the BOE will be fully focused on providing stimulus to support the hit to demand, no matter how hard the pounds falls initially,” said Derek Halpenny, the London-based European head of global markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. “The continued soft inflationary pressures gives the BOE plenty of scope to justify that approach to any monetary policy changes.”

(An earlier version of this story corrected the pound’s direction in second paragraph.)

Before it's here, it's on the Bloomberg Terminal.