Sterling sheds 1% as poll shows support for Brexit

Sterling fell sharply on Tuesday, retreating from a one-month high against the dollar after a new poll suggested supporters of Britain leaving the European Union were ahead in the run-up to a June referendum.

The pound had rallied from a seven-year low of $1.3836 struck in late February to a one-month high of $1.4437 on Friday as markets shifted their focus from a possible Brexit to economic data and looser monetary policy from the European Central Bank.

But traders said the new poll published in the Daily Telegraph on Tuesday dragged the pound lower. The ORB opinion poll showed support for leaving the European Union stood at 49 per cent, two percentage points ahead of the campaign for staying in the EU.

Sterling fell 1 per cent to $1.4155, losing ground for the second day in a row. The euro was up 0.8 per cent at 78.22 pence, while sterling’s trade-weighted index was down 1 per cent at 85.5

“The new poll has led to renewed selling in the pound,” said a spot trader. “Given the recent rise, we could see investors going back to building short positions against sterling.”

Investors worry that Brexit could depress growth, push back UK rate hike expectations and threaten the huge foreign investment flows Britain needs to fund its current account deficit, one of the biggest in the developed world at about 4 per cent of output.

And while the latest poll gave those wanting to exit the EU the edge, bookmakers see a one-in-three chance of Britain exiting.

"The uncertainty around the credibility of polls, and the margin for error within them, means that we are very unlikely to have confidence about the outcome before the vote takes place, and I'm not going to be bullish on sterling during that period," said Kit Juckes, currency analyst at Societe Generale.

Most traders said sterling would struggle before the referendum on June 23rd, particularly if labour and wage data on Wednesday adds to signs that uncertainty over the vote is worsening a slowdown in the UK economy.

Finance minister George Osborne announces his next budget this week. He has said he will announce deeper cuts to public spending in order to protect his plan to eliminate the budget deficit from a weakening of the economy.

In a newspaper article published on Sunday, Osborne warned that China’s slowdown, a fall in oil prices, interest rate changes in some countries and political instability in the Middle East meant the world was facing more uncertainties than at any time since the financial crisis.

Reuters