Pound Weakens as Polls Check Traders’ Optimism on U.K. EU Vote

  • Survation puts ‘Remain’ campaign’s lead at just 1 point
  • Bookies say it’s almost over as gamblers see Brexit rejected

Markets, Pound Find Relief in Diminished Brexit Chance

Pound traders are getting a reality check as the latest survey signals the outcome of the U.K.’s referendum on whether to quit the European Union is still too close to call.

Sterling reversed a 3.5 percent rally versus the dollar made in the previous two days, retreating from its strongest level since before the vote date was set in February. The latest setback came on with an IG/Survation poll putting the “Remain” vote at 45 percent and “Leave” with 44 percent. That undercut some of the optimism that the “Remain” campaign was set for a comfortable victory and would avert a Brexit that Prime Minister David Cameron said would weaken the economy.

With the vote just two days away, sterling has whipsawed as traders contemplate the consequences of a decision to leave the world’s-biggest trading bloc. Fed Chair Janet Yellen on Tuesday said a vote to leave could lead to a period of market volatility that may negatively affect the U.S. economy, in response to questions from the Senate Banking Committee in Washington.

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Some investors are staying on the sidelines before the vote, which is reducing liquidity and exaggerating price moves, according to Valentin Marinov, head of Group-of-10 foreign-exchange strategy at Credit Agricole SA’s corporate and investment-banking unit in London.

“For many investors, the Brexit vote is still a binary event that can go either way, and from that point of view what we are seeing now” is also “driven by very poor liquidity,” Marinov said. “Poor liquidity is accentuating the market moves.”

The pound shifted between gains and losses on Tuesday a day after a YouGov poll for the Times newspaper showed the pro-EU side leading by two percentage points, while a survey by ORB for the Daily Telegraph had “Remain” at 53 percent and “Leave” at 46 percent among those certain to vote. The ORB poll had added to momentum suggesting the U.K. was moving toward staying.

Oddschecker puts the chances of a vote to maintain the status quo at 80 percent.

The pound fell 0.5 percent to $1.4624 as of 4:35 p.m. in New York, after reaching the highest level since Jan. 4. The currency gained 3.5 percent in the previous two days, the biggest back-to-back increase in more than seven years. Sterling was little changed at 76.97 pence per euro.

While a measure of the pound’s volatility versus the dollar over the coming week fell 1.2 percentage points to 37.8 percent on Tuesday, that’s still well above its five-year average of 7.8 percent.

For a look at how gamblers see the referendum, click here.

Billionaire investor George Soros, who made $1 billion betting on a devaluation of the pound in 1992, became the latest high-profile business or political leader to warn about the economic dangers of leaving the EU, saying the pound may slump more than 20 percent against the dollar. Such a decline would be bigger than when he profited from betting against the currency.

U.K. government bonds declined. The yield on benchmark 10-year gilts rose five basis points, or 0.05 percentage point, to 1.29 percent, a two-week high. The 2 percent securities due in September 2025 fell 0.44, or 4.40 pounds per 1,000-pound face amount, to 106.17.

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