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Sterling hits 3-1/2 month high as support for 'In' camp grows
May 24, 2016 / 7:51 AM / 2 years ago

Sterling hits 3-1/2 month high as support for 'In' camp grows

LONDON (Reuters) - Sterling surged almost 1.5 percent to its strongest against the euro since before the Brexit referendum campaign began in February, helped by another poll showing strong support for staying in the European Union.

Sample polymer five and ten GB pound banknotes are seen on display at the Bank of England in London September 10, 2013. REUTERS/Chris Ratcliffe/pool

Traders saw little new to go on from testimony by Bank of England Governor Mark Carney and colleagues in parliament, and dealers cited the abandoning of Brexit bets or hedging by major fund investors for the scale of the gains.

Sterling was a touch below highs hit against the dollar at the start of May, but a 1-percent gain to $1.4630 was its best day since mid-March. It gained 1.5 percent to 76.23 pence per euro, a 3-1/2 month high.

“I don’t know for sure, but either this was a big order or real money players have just said ‘get me out of here’ today,” said Richard Benson, co-head of portfolio investment with currency managers Millennium in London.

“It looks to me like either someone very large or a broader move by a part of the investment community.”

Speaking to lawmakers, Carney said that there was a “higher bar” in drawing conclusions about the economy due to substantial uncertainty around the Brexit referendum, noting that the BoE would be able to deal with any fallout from the vote.

He also said that it was not clear whether the bank would cut interest rates if the economy slowed after a possible Brexit, but said leaving the EU would reduce the probability that the next move in rates would be up.

He also said the BoE would not seek to counter moves in the exchange rate if Britain voted to leave.

Some traders said Carney sounded more measured than in previous statements on Brexit, cooling nerves in the market over the extent of risks to the economy and calls by “Leave” supporters for him to be removed from his post after the vote.

The latest poll from ORB, published in 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.

“We haven’t seen anything new (from the Treasury Select Committee) to change our view on the outlook for monetary policy, as much of the conversation has centred around the MPC views on the implications of the EU referendum,” TD Securities European head of currency strategy, Ned Rumpeltin, said.

“Markets have also paid some attention to the referendum polls, with the latest Telegraph-ORB poll in particular showing a shift in favour of ‘Remain’ in some of the key demographics that had been generally supporting the ‘Leave’ side,” he said.

Worries Britain might vote to leave the EU 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. It has recovered around half of that as investors price out chances of a rate cut that some were factoring in if Britain opted to leave the union.

“We would be careful though, as a poll showing a ‘Leave’ advantage may be enough to push the currency off the cliff and erase some of its recent gains,” IronFX Global senior analyst, Charalambos Pissouros, said.

Eikon readers can click cpurl://apps.cp./cms/?pageId=brexit for the latest news and analysis on the EU referendum.

Editing by Tom Heneghan

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