Sterling drops to eight-week low on Brexit fears

Volatility rises as traders prepare themselves for the financial turbulence that may happen after the vote

Sterling swung on Tuesday as anxiety about Britain’s referendum on staying or leaving the European Union continued to build. (Photograph: Jason Alden/Bloomberg)

Sterling swung on Tuesday as anxiety about Britain’s referendum on staying or leaving the European Union continued to build. (Photograph: Jason Alden/Bloomberg)

 

The pound fell toward an eight-week low while the yen approached its strongest level since October 2014 as concern the UK will vote to leave the European Union prompted demand for safer assets.

Four polls from three companies have put the “Leave” campaign ahead against “Remain” before the June 23 referendum. A gauge of the pound’s one-month volatility climbed to the highest since 2008 as traders prepare themselves for the financial turbulence that may happen after the vote. A measure of swings in Group of Seven currencies rose to a two-month high before central bank meetings in the US, Japan and UK this week.

“Risk sentiment has taken a beating with volatility up partly on latest Brexit polls still showing the U.K. is on course to quit the European Union,” said Ray Attrill, co-head of currency strategy at National Australia Bank Ltd. in Sydney. “Amid all of of this, the yen continues to demonstrate its preeminent safe-haven characteristics.”

Sterling lost 0.6 per cent to $1.4182 and fell against all 16 major peers as of 1:30 p.m. Tuesday Tokyo time. It reached $1.4116 on Monday, the weakest level since April 14th. Implied volatility for one-month options on the pound versus the dollar rose to 28.55 percent on Monday. That’s more than three times the level at the end of last year.

Bloomberg