Pound ‘to gain 4%’ if UK stays in EU

If Britons vote as expected to retain their EU membership card on June 23, then sterling would gain 4% on the dollar in the immediate aftermath of the referendum, a Reuters poll has found.

However, if the opinion polls and betting firms prove wrong again and Britain decides to walk away from the EU the currency would fall 7%, the poll suggested.

Sterling fell to its weakest level in two-and-a- half years against a basket of currencies yesterday, as investors showed rising concern about the outcome of the vote.

“It highlights how vulnerable sterling is to any glimmer of any political moves. It is very vulnerable and pretty volatile and we still have a couple of months to go before the referendum,” said Jane Foley at Rabobank.

Support for Britain staying in the EU has fallen but maintains the narrowest of leads and bookmakers’ odds still point to a roughly 35% chance of a Brexit, which analysts say is now largely priced into the pound.

Adding to confusion, opinion polls failed to predict a Conservative Party victory in Britain’s 2015 parliamentary election, blaming sample recruitment methods and, potentially, unintended herd behaviour by pollsters.

With so much uncertainty abounding, the Swiss franc and Japanese yen may be the biggest gainers from falls in sterling in the run-up to the referendum, options prices suggest. Sterling has been hit hard as investors worry leaving the EU would be a threat to the foreign investment flows Britain needs to fund its current account deficit. A rise in the fourth- quarter deficit to a record high put focus on how exposed Britain would be, should those foreign investors and buyers of its bonds be spooked by a Brexit.

Reuters


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