The pound dropped after a new poll showed a jump in support for the campaign to take Britain out of the European Union, spooking some investors who had thought that the result was a forgone conclusion.
Sterling fell against all of its 16 major peers as ICM opinion polls released Tuesday by the Guardian showed a lead for the 'leave' camp. A phone survey showed 45 percent of respondents supported leaving, 42 percent for 'remain,' and 13 percent were undecided, in contrast to a previous survey which put the pro-EU camp ahead. An online poll also put the Brexit camp ahead.
The question now is whether the results should be seen as an outlier following a raft of polls showing the 'remain' camp in the lead, or whether it marks the start of a broader shift toward the 'leave' campaign. Whatever the outcome, the drop in the pound shows just how sensitive investors are to shifts in public opinion, highlighting the risk of more volatility with just over three weeks of the campaign left to go.
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"The market has moved to reprice in higher risk of Brexit," said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. "But so far it is only one poll's result. If repeated in other polls it would result in a more significant decline for the pound."
The pound dropped 0.9 percent to $1.4511 as of 5:37 p.m. London time, the biggest drop since May 3. It weakened 0.9 percent to 76.79 pence per euro. A gauge of the pound's one-month volatility versus the dollar climbed to 19.25 percent, the highest since 2009.
Rally Halted
The ICM survey is the latest in a series of boosts for the 'leave' campaign, halting a recovery in sterling in its tracks. The U.K. currency was the best performing Group-of-10 currency in the past two weeks as investors took heart from polls showing a clear lead for the 'remain' campaign. That rally was sustained even as subsequent surveys indicated the gap was closing.
The findings of the ICM phone survey are "interesting and unexpected," Anthony Wells, the YouGov Plc research director who runs the U.K. Polling Report website, said by phone. It's "very out of line in terms of other telephone polls," which have been showing leads of about 8-10 points for 'remain.'
"Suddenly showing 'leave' ahead raises all sorts of questions," Wells said. He highlighted two caveats: Firstly, it's only one poll, raising the question of whether it will actually be echoed by other telephone surveys; and secondly it was conducted over a bank-holiday weekend, when it may be harder to reach respondents if they're away for short vacation breaks.
An ORB poll for the Daily Telegraph newspaper this week showed 51 percent of definite voters surveyed supported remaining in the bloc, and 46 percent wanted to leave, a narrower lead for the 'remain' camp than in ORB's previous poll. Bookmaker William Hill Plc said 85 percent of all EU referendum bets taken over Monday's public holiday in the U.K. were in favor of Britain exiting the bloc.
The ICM poll was conducted after a week in which in-fighting within the Conservative Party over the EU referendum worsened and net migration into the U.K. rose to close to a record, adding fuel to the 'leave' camp's case. Parliament's Treasury Committee accused both sides on Friday of making "bogus claims" about the cases for staying in or leaving.
"Overnight and over the weekend it seems to me that the news was rather pro-Brexit, i.e. pound-negative," Esther Reichelt, a Frankfurt-based currency strategist at Commerzbank AG, said before the ICM survey was released. "Recent polls are much closer, and I simply don't think that it is warranted to be too sure about the expected outcome of the referendum."
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