Pound falls on poll boost for Leave

The pound slipped more than 6 per cent to below $ 1.40 in volatile trading as early results pointed the way to a shock victory for the Leave camp in the UK referendum on EU membership.

Dramatic falls in sterling peppered market activity, wiping out earlier market confidence from exit polls that suggested the Remain camp would prevail.

So acute was market uncertainty that sharp falls were quickly followed by equally severe rises.

That sparked a record 7.5 per cent cent intraday range for the pound, eclipsing the 6.5 per cent achieved in the October 2008 crash and smashing the 4.9 per cent range on Black Wednesday in 1992.

Jeremy Cook, chief economist at payments company World First, said sterling was “dying”., adding:

“The usual caveats exist about liquidity but these moves are concerning and bring back pretty painful memories of 2008,” he said.

Before any results had been declared, the pound had risen above the psychological mark of $ 1.50, a gain of 0.9 per cent in early Asian trading, its highest level since December 17.

Market confidence was driven by a YouGov poll released after the polls closed at 10pm on Thursday, which indicated 52 per cent backing Remain and 48 per cent in favour of Leave.

But by midnight London time, traders gave up some of their bullish support for the currency, pegging it back to below $ 1.48, as the first meaningful result of the night was declared — a narrower than expected Remain majority in Newcastle.

That wobble turned to outright fear as the pound plunged below $ 1.43 mark in a matter of seconds — a drop of 3.4 per cent — as the result from Sunderland was declared, showing a big majority for the Leave camp.

The pound continued to veer around, rising again to about $ 1.4551, as the market waited anxiously for further results. As Hong Kong opened, the pound slipped below $ 1.40, down 6 per cent on the Asian session, while it was hammered against the yen, losing 7.7 per cent of its value at one point.

Yet such was the volatility in sterling trading that within minutes the pound was back up to above $ 1.45.

It was also more than 3 per cent lower against the euro.

Adam Cole, forex strategist at RBC Capital Markets, said: “I think we still have to wait for a meaningful number of declarations and things could still be very volatile as they start coming in.”

Koon Chow, macroeconomics and foreign exchange strategist at UBP, said the market had assumed the vote would be a clear win for Remain, judging by the pound’s elevated level.

Risk appetite, which was evident in the aftermath of the YouGov poll, vanished and went into reverse. The yen swung to a 1 per cent gain, having fallen at one point by 0.4 per cent. The euro, seen to be vulnerable if Britain voted to leave the EU, was down half a per cent.

​One Tokyo trader said: “A sense of chill has just replaced a sense of confidence that we had 30 minutes ago.”

Trading volume was very light — movements were being driven in Tokyo by small-scale forex speculators and desks said they were taken by surprise by the scale of volatility.

After a big fall against sterling, the yen jumped from ¥157.26 to ¥148.03.

Sterling closed officially at $ 1.4878 on Thursday, according to Reuters. In a highly volatile session, sterling rose as much as 1.6 per cent to $ 1.4947, its highest level for the year. Against the euro, the pound closed up 0.3 per cent at 76.49p on Thursday.

Analysts at BNP Paribas said overall positioning remained heavily short sterling despite some reduction early on Thursday, “suggesting scope for a further relief rally in the GBP in the event a Remain vote is confirmed”.

Markets are braced for potentially big fluctuations in currencies given thin trading conditions, with a number of forex dealer banks cautioning that turbulent conditions in the wake of the result could make pricing difficult.

Over the past week, financial markets have rallied broadly on a growing conviction that UK voters will stay in the EU, a view endorsed by bookmakers. Opinion polls remain close, although the Remain camp has regained momentum.

A Financial Times poll of polls put the Remain campaign ahead with 48 per cent of the vote compared with 46 for Leave.

Mr Cole said that “the final polling evidence is more ambiguous than the price action would suggest”.

YouGov noted that its survey suggested the race was still too close to call, “but the recent trend has been towards Remain, just as other referendums in the past have shown late movement towards the status quo”.

Given the recent advance of the pound, Kit Juckes, strategist at Société Générale, said the risk for financial markets was now “less symmetric now that it was a week ago”. He expected a sharp decline in the pound should the UK vote to leave and a more muted gain in the event of a decision to stay.

Additional reporting by Michael Hunter

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