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Cost of hedging sterling weakness soars as 'Brexit' uncertainty deepens

A man walks past various currency signs, including the dollar (top R), Australian dollar (top L), pound sterling (centre L) and euro (bottom L), outside a brokerage in Tokyo October 28 2014. REUTERS/Yuya Shino

LONDON (Reuters) - The cost of hedging against sharp weakness in the sterling exchange rate shot up to its highest in more than four years on Monday, reflecting deepening concerns about whether Britain would stay in the European Union or not.

The camp which is campaigning for Britain to leave the EU received a boost after London mayor Boris Johnson came out in support for an EU exit. Bookmakers have also upped the odds of Britain leaving the Union.

The six-month implied volatility in sterling/dollar GBPVOL= -- a gauge of how sharp currency moves will be -- rose to 12.2 percent its highest since late 2011, according to Reuters charts. The contract captures the date of the referendum, scheduled for June 23.

The six-month risk reversals GBP6MRR= -- a gauge of demand for options on a currency rising or falling -- indicate the bias for sterling weakness at its highest since late 2011, according to Reuters data.

In the spot market, sterling fell to a three-week low of $1.4175, down 1.5 percent GBP=D4. The euro was also up 1.2 percent at 78.30 pence EURGBP=D4.

Reporting by Anirban Nag and Patrick Graham; Editing by Jamie McGeever

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