Sterling dropped to a three-week low versus the dollar after polls showed more Britons favored quitting the EU. That revived concern the June 23 referendum may
throw global markets into turmoil and undermine confidence in the 28-nation trading bloc.
Three surveys on Monday showed a lead for the ‘Leave’ campaign. While the U.K. currency pared its earlier declines, a gauge of anticipated swings against the dollar in the next month surged to the highest in more than seven years.
“Today’s move was a function of reality sinking in for overseas investors — the referendum will be a close outcome,” said Viraj Patel, a foreign-exchange strategist at ING Groep NV in London. “We’re probably seeing some of those long post-Brexit pound bets unwind.”
As Brexit risks become more imminent, traders and market operators around the world are preparing for the decision. Margin requirements are getting raised, trading hours will be extended London, and investors from Thailand to Boston are waking up to how their positions may be affected if Britons choose to leave the the trading bloc they’ve been in since 1973.
The Bank of England has said uncertainty surrounding the vote is hurting U.K. growth, while institutions including the International Monetary Fund and Organisation for Economic Cooperation and Development have warned of dire consequences if the nation votes to leave the world’s largest single market. Federal Reserve Bank of Chicago President Charles Evans said the referendum is undermining confidence in the global outlook at a time when the international economy is already losing momentum.
The pound dropped 0.4 percent to $1.4465 as of 4:48 p.m. in London, after earlier sinking as much as 1.1 percent to the lowest since May 16. It slipped 0.3 percent to 78.54 pence per euro, touching the weakest in more than three weeks. One-month implied volatility in the pound-dollar pair climbed above 22 percent, the highest since February 2009.
The U.K. currency will trade below $1.40 in the two weeks or so before the vote, according to ING’s Patel. The “wavering” dollar makes bets on the sterling spot rate harder, and so before the Federal Reserve’s June 15 policy decision, it’s better to buy the euro versus the pound, he said.