Sterling slips again after biggest one-day fall for six weeks

May 4 Sterling slipped again on Wednesday, having recorded its biggest one-day fall against the dollar for six weeks in the previous session after a poll showed the campaign for Britain to leave the European Union neck-and-neck with the campaign to stay in.

The poll helped drive down the pound by about 1 percent versus the greenback, though the currency had already been weakened by poor survey of manufacturing sector managers that underlined the economic risks posed by the June 23 referendum.

An equivalent survey of the construction sector on Wednesday, which showed output grew at its slowest rate in nearly three years in April, had little effect on the currency.

Most economists reckon that a Brexit would deal a blow to the British economy, with a hefty current account deficit – 7 percent of GDP in the last quarter of last year – leaving Britain vulnerable to any pull-back in investment flows.

Worries about that have helped drive the pound down about 9 percent on a trade-weighted basis since late last year.

On Wednesday sterling edged down 0.2 percent to $1.4500 , almost three U.S. cents away from the four-month high of $1.4770 it had hit on Tuesday before the poll and the manufacturing data was released.

“The market is very uncertain about how to price in the Brexit risk – it is struggling to find an equilibrium,” Commerzbank’s head of currency research, Ulrich Leuchtmann, said.

“It was priced in very aggressively in Februrary, then it’s been priced out to a large degree, but the question is: has this repricing gone too far?”

Tuesday’s ICM poll, which was weighted to take into account the likelihood of respondents taking part in the vote, showed 45 percent of voters favoured a Brexit, against 44 percent who wanted to stay in the 28-member bloc.

Eikon readers can click cpurl://apps.cp./cms/?pageId=brexit for the latest news and analysis on the EU referendum.

Despite the closeness of most of the polls, bookmakers have consistently put the “In” campaign well ahead of those who want to leave the bloc. Betting website Betfair shows the chances of a Brexit at around 31 percent.

Against the euro, sterling was steady at 79.12 pence on Wednesday.

“Tomorrow’s services index is by far the most important and if it follows the decline in yesterday’s manufacturing series, we would expect increasing talk that the looming EU referendum is weighing on business sentiment, which would be negative for sterling,” RBC Capital Markets strategists wrote.

“Our trade of the week this week, partly based on this view, is long euro/dollar.”

Source: Reuters

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