Sterling slips as Brexit looms large again
Sterling slipped against the euro and dollar on Wednesday, with investors worried that the latest polls still show Britons who want to leave the European Union at a referendum in June neck-and-neck with those who want to stay.
The pound had fallen some 7 percent between mid-November and mid-April, when it made a substantial recovery after U.S. President Barack Obama stepped in on the side of the “In” campaign, saying Britain would be at the “back of the queue” for any transatlantic trade deal.
But with surveys conducted since Obama’s intervention still pointing towards a very closely fought referendum on June 23, and with only six weeks until the ballot, investors have started to become more worried about the risks.
A poll from market research company ICM on Monday showed 46 percent of those likely to vote wanted to leave, compared with 44 percent who wished to stay and 11 percent who were undecided.
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“The risk of exit is drifting up a bit, but it’s drifting up having come down with quite a wallop on the day that Obama interjected,” RBC Capital Markets currency strategist, Adam Cole, said. He called the referendum a “huge lump of uncertainty” for investors.
Sterling was down 0.3 percent against the euro by 0800 GMT at 78.98 pence. Against the dollar it was down 0.1 percent to $1.4425.
Currency traders will be watching industrial output data due at 0830 GMT for any impact on the pound.
Money markets have priced in a substantial chance of a cut in Bank of England interest rates by the end of the year, a reflection of concerns over the impact of a Brexit – or the turbulence caused by the vote alone – on growth.
The BoE’s monetary policy committee starts a two-day meeting on Wednesday, and will on Thursday release updated growth and inflation forecasts in a quarterly report.
“The recent slowing in the UK’s dataflow is compounding the effects of political uncertainties and keeping rates markets inclined to price for small risk of policy easing rather than the early 2017 rate hikes that we expect,” BNP Paribas strategists said in a research note.
“Sterling appears overvalued verses the dollar (and) the soft dataflow, in addition to the upcoming political risk, suggests that there is scope for another period of sterling undershooting,” they wrote.
Source: CNBC
