The pound swung wildly on currency markets on Monday, reaching extremes of volatility not seen since the financial crisis, as City traders reacted to polls suggesting voters were increasingly likely to send Britain out of the EU this month.
The poll boost to the Vote Leave campaign sent the pound tumbling by up to 1.5 cents to below $1.44, adding to a decline of 2 cents last week and indicating the degree of pressure on the UK currency since the remain camp’s lead in the polls began to evaporate.
A dovish speech by the US central bank chief, Janet Yellen, hinting that poor jobs data meant the Federal Reserve was unlikely to raise rates this month, steadied the pound – despite her comments that a vote to leave the EU could hurt the US economy.
“One development that could shift investor sentiment is the upcoming referendum in the United Kingdom. A UK vote to exit the European Union could have significant economic repercussions,” she said.
Sterling’s value has become increasingly volatile as fears of a Brexit have increased among investors. The index charting the daily swings in the pound’s value has risen to its highest level of volatility since the first quarter of 2009. It is double the level seen in April when the remain camp was ahead in the polls.
Elsa Lignos, a foreign exchange expert at City firm RBC, one of many to warn that the pound would come under further pressure should the lead established by Vote Leave be consolidated, said: “Brexit is almost all that matters for the pound at the moment.”
Polls by YouGov, ICM and TNS showed the Brexit campaign extending its recent lead as concerns about migration and the costs of EU membership rose to the top of the political agenda.
The YouGov poll showed 45% of Britons would vote to leave the EU compared with 41% who would vote to stay in. A separate online survey by TNS showed 43% backed Brexit, while 41% supported continued EU membership. An ICM poll of 2,000 people added to the pressure, with 48% in favour of the UK leaving, up one point on last week, and 43% in favour of remaining.
Mark Makepeace, a senior executive at the London Stock Exchange, said the pound was being held up by “an underlying belief among City firms” that the remain camp would prove victorious. A Brexit vote would send the pound tumbling, he said.
But Kallum Pickering, an economist at Berenberg bank, said there was a good reason the pound had not crashed yet. He said his monitoring of polls showed that while support for remain had slumped to its lowest level all year, “analysis of the underlying poll trends does not point conclusively to a significantly higher Brexit risk”.
Most banks, insurers and fund managers have voiced fears about the prospect of Brexit and the impact it could have on sterling. HSBC said earlier this year the pound would fall 20% in the event of a no vote to leave the EU.
The boss of Hitachi has become the latest business leader to urge Britain to vote to remain in the EU. Chairman Hiroaki Nakanishi said the Japanese firm, which has its global rail hub in London, had invested over a billion pounds in the UK’s rail and energy sectors.
In a Daily Mirror article he wrote: “Together Japanese investors provide 140,000 direct jobs in the UK, and many more in the supply chain. A recent survey of these companies showed 95% of respondents thought Brexit would be negative for their businesses and for UK jobs; and none wanted to see the UK leave the EU.
“For most global companies like Hitachi, the critical benefit of investing in the UK is that it is the best base for accessing the whole European market of 500m people ... But take away the UK’s membership of the EU, and the future investment case looks very different.”
Before the recent falls in sterling, the currency had already declined by 10% against the dollar as the outlook for the UK economy looked uncertain and foreign investment slowed, especially in commercial property.
Figures from the car industry and high street stores showed that consumers were more circumspect than last year but far from panicked with spending marginally higher than last year.
New car registrations in May rose 2.5% compared with last year to 203,585, the highest for the month since 2002, according to the Society of Motor Manufacturers and Traders. But the trade group noted growth had eased, with May marking the second month running when car registrations rose by less than 3%.
Like-for-like retail sales nudged 0.5% higher on the year in May, the British Retail Consortium (BRC) said. It brought some relief to retailers after falling sales in the previous two months, but the trade group said conditions remained tough.
Ulrich Leuchtmann, an analyst at Commerzbank, told the Financial Times: “The market has become too comfortable with its ‘things will work out all right’ approach. It would be far less prepared for a Brexit outcome than for a Bremain. That is the reason why these polls receive far more attention and move the market much more than those polls that still see a lead for Bremain.”
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