Sterling Volatility Heads Higher as Leave Camp Builds Lead

Brexit jitters pushed the pound down as sterling volatility surged to levels not seen since the financial crisis yesterday after three EU referendum polls put the leave campaign in the lead.

David Cameron, the prime minister, warned on Monday of a “decade of uncertainty” if Britain votes to leave the EU, while Boris Johnson, the former London Mayor, said it was a “delusion” to believe that “bartering away our freedom and democracy” would boost UK prosperity.

As the rival camps clashed on the economy, the price of insuring against a collapse in the pound against the dollar jumped to its highest since the start of 2009 after a poll showed 45% of Britons would vote to leave the EU in the 23 June vote.

One-month implied volatility climbed to 22% after YouGov’s online poll of almost 3,500 people showed just 41% would vote to stay in.

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A separate online survey by TNS showed 43% backed a leave vote, while 41% said they would vote to remain.

The pound fell by as much as 1.5 cents – or 1.2% – against the dollar to $1.4353 after the polls were released.

Sterling also slipped by more than a cent against the euro, to €1.2649, and fell against a basket of other major currencies.

The pound recovered in mid-morning trading before dropping back below $1.44 against the dollar after an online poll by ICM showed a bigger lead for the leave campaign compared with just a week ago.

The ICM survey of 2,000 people conducted over the weekend, showed 48% of Britons would vote to leave the EU, up one percentage point on last week, compared with 43% who said they would vote to remain.

With just over a fortnight to go before Britons head to the polls, betting markets still put the Remain campaign in the lead, with a 72% chance that Britons will vote to stay, compared with 28% for leave.

However, the probability of a leave vote has climbed from less than 20% last month.

IG, the spread-betting group, said clients were now putting more money on a Brexit vote than remain for the first time since the market was created at the beginning of 2016.

The National Institute of Economic and Social Research (NIESR), Goldman Sachs and HSBC have warned that the pound could plunge by as much as 20% if Britain votes to leave the EU on 23 June.

According Paul Hollingsworth, UK economist at Capital Economics, a vote for leave could trigger an immediate fall in the value of sterling.

However, he believes the severity of the fall would be determined by what the opinion polls say over the next few weeks.

“If we see more of shift towards Leave then clearly we could see some of that depreciation come before the vote than after it. However, if polls lean towards Remain and we still vote to leave then there would be more of shock factor, and that could hit the pound hard.”

On balance, he believes that a vote to leave the EU would cause a 10%-20% fall in the pound.

Mike Amey, a managing director at Pimco, the world’s largest bond fund believes it would be more like 5% to 10%.

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Asked on Monday about the decline in the value of the pound after the opinion polls were released, Mr Johnson said: “The pound will go where it will over the short term. But, believe me, in the long term you can look forward to fantastic success for this country.

“I think the pound’s value will depend entirely on the strength of the UK economy.”

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