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Sterling boosted by support for "In" camp in Brexit vote
May 24, 2016 / 7:46 AM / 2 years ago

Sterling boosted by support for "In" camp in Brexit vote

LONDON, May 24 (Reuters) - Sterling rose against the euro and the dollar on Tuesday, boosted by a poll that showed the “Remain” camp was well ahead over their “Leave” rivals with a month to go before a vote on Britain’s future in the European Union.

On Monday, sterling started the week on a shaky note after warnings from Prime Minister David Cameron and finance minister George Osborne that a vote to leave the EU could push Britain into a year-long recession and cost at least half a million jobs.

But the latest poll from ORB published in Tuesday’s edition of the Telegraph newspaper gave the “Remain” camp a 13-point lead over their “Leave” rivals, after winning support for the first time from a majority of men, those aged over 65 and Conservative voters. That seemed to soothe nerves towards the currency, traders said.

Sterling was up 0.4 percent against the euro at 77.15 pence per euro, while it was firmer against the dollar at $1.4516. Sterling’s gains accelerated after stock markets in Europe turned higher.

The pound tends to underperform during times of risk aversion because of the huge investment flows Britain relies on to balance its more than 5-percent current account deficit. Flows dry up when investors are worried about growth and market stability - jitters that are heightened by any developments that make a Brexit look more likely.

Attention will now turn to a testimony by Bank of England chief Mark Carney and three other policymakers before lawmakers. In the past, Carney has warned about downside risks from Britain exiting the EU, comments which have drawn sharp criticism from those campaigning to leave the union.

“We expect him to reiterate that EU referendum-related uncertainty has been weighing on business activity of late,” said Manuel Oliveri, currency strategist at Credit Agricole, adding that in case Britain opts to stay in the EU, expectations of higher growth and rates will come back to boost the currency.

Brexit concerns drove the pound down 11 percent on a trade-weighted basis between mid-November and early April, when it hit a 2-1/2-year low, but it has recovered almost 5 percent. That rise came as investors priced out chances of a rate cut that some were factoring in if Britain opted to leave the union.

But with investors also starting to factor in greater chances that the Federal Reserve could raise rates this summer, traders expect gains in the pound against the dollar to run out.

Eikon readers can click cpurl://apps.cp./cms/?pageId=brexit for the latest news and analysis on the EU referendum. (Reporting by Anirban Nag; Editing by Andrew Heavens)

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