Sterling Falls as Investors Fret Over Brexit Uncertainty
Sterling has fallen against the dollar and yen on growing uncertainty over the outcome of the UK’s EU referendum. The “volatility index” – a measure of investors’ uncertainty – has hit levels last seen in the 2008 financial crisis.
Investors are spooked by data showing the chances of a Remain vote have fallen, although markets have also been rattled by global economic worries.
But the Leave campaign argues that the pound has simply just retreated to levels last seen in March.
Investors are choosing to put their money instead into the dollar and the yen, with the pound falling to a three year low against the Japanese currency – considered a haven in times of uncertainty. On Monday, sterling was at an eight-week low against the dollar.
With 10 days to go before the referendum vote, two polls at the weekend put the Leave camp ahead, while betting firm Betfair said the implied probability of a vote to Remain has now fallen to 68.5% from almost 80% a week earlier.
“We expect incoming polls to move the pound more aggressively than before,” said Charalambos Pissouros, senior analyst at IronFX Global. “If new polls continue to show a tight race between the two campaigns as we approach the voting day, the outcome is likely to become even more uncertain and hence, volatility in sterling is likely to heighten further.”
Joe Rundle, head of trading at ETX Capital, said the markets were now on full Brexit alert. “Polls show it’s now too close to call and markets are responding with some very twitchy activity. Sterling has shed more than 2% in two sessions to retrace its April lows.”
Worries about the economic impact of leaving the EU were also blamed for a big fall in Asian stock markets. Japan’s Nikkei index closed 3.5% down, while Hong Kong’s main index slid 2.5%. However, the reaction on London’s FTSE 100 was muted, with the index down 0.3% in morning trading.
On Sunday, Leave campaigner Nigel Farage told the Andrew Marr show that sterling had recently been strengthening.
“Sterling is up since March. Since Brexit became a possibility, sterling is up and FTSE is exactly the same level it was in March,” he said. He also pointed out that a weaker pound was good for Britain’s exporters. Last week, official figures showed that the UK trade deficit narrowed in April on the back of a jump in exports.