Sterling posted its biggest gain in eight years yesterday after a series of polls showed that Britons are increasingly likely to vote to remain in the EU in Thursday’s contentious referendum on membership in the 28-country bloc.
Stock markets also moved higher in the UK and across the globe, reversing some of the most tangible signs of unease which had accompanied swelling support for Leave before the murder last week of Labour MP Jo Cox prompted a suspension of campaigning.
Sterling is the most visible measure of global investor attitudes towards the referendum, and the rally – which saw the UK currency trade above $1.47 for the first time since May, a rise of more than 2 per cent – came amid increasing confidence within the Remain campaign that momentum had shifted back in its favour.
Most extreme
Mike Amey, a portfolio manager for Pimco, said, “The market has definitely gone from, at the most extreme, a 50/50 chance of
Brexit
[British exit from the EU] back to a market implied possibility of around 75/25 for Remain.”
Sterling has swung wildly in recent days and measures of volatility have spiked to levels last seen in the 2008 global financial crisis. The sharp increase yesterday underscored the potential for further market upheaval if the vote is to leave.
A Financial Times poll of polls has the contest finely balanced, with both sides registering support from 44 per cent of voters.
With stock markets also rising, analysts said the markets were reacting to the apparent change of momentum in the referendum, but that the mood remained nervous. “It’s a continued move from Friday when we already had some relief,” said Christian Gattiker, head of research at Julius Baer Group Ltd in Zurich.
“The momentum for Brexit was so strong and it was suddenly broken, which caught everyone by surprise.
More balanced
“We were steering into a clear Brexit scenario and now we’ve seen a counter move which makes it more balanced, more in line with what investors thought in the first place.”
Investment banks and asset managers are preparing for the possibility of further shifts in sentiment as the campaigns battle for the undecided voters likely to determine the outcome.
“They think it’s all over. It isn’t, yet,” said Kit Juckes, a macro strategist at Société Générale in London.
“The market will surely gyrate some more in the next few days as any shift in that position triggers an exaggerated reaction, not just for sterling but for wider risk sentiment.”
The ripples had also spread around the rest of financial markets yesterday, with other currencies that tend to gain from upbeat market conditions, such as the Australian and Canadian dollars, also climbing.
– (Financial Times, additional reporting Bloomberg)
