Forex Sterling hits 3-week high on growing 'Bremain' hopes

by **Cals** Wed 22 Jun 2016, 01:02

Forex

[size=28]Sterling hits 3-week high on growing 'Bremain' hopes

By Reuters / Reuters | June 21, 2016 : 2:42 PM MYT

TOKYO/SINGAPORE (June 21): The British pound set a three-week high against the dollar on Tuesday, getting a lift after opinion polls swung in favour of the campaign for Britain to stay in the European Union.

Two opinion polls on Monday showed that the "Remain" camp has recovered some ground in Britain's European Union referendum debate.

The implied probability of a "Remain" vote in Thursday's referendum rose to around 78% after falling as low as 60% last Thursday, according to odds from gaming website Betfair.

The British pound rose 0.2% in Asian trade to US$1.4707, and touched a peak of US$1.4728 at one point, its highest level since May 26.

On Monday, sterling climbed 2.1% against the dollar, its biggest one-day gain since late 2008.

"The market is reacting to every twist in opinion polls but trading is becoming choppy because people are avoiding taking big positions ahead of the poll. Our options desk was fairly quiet yesterday," said Kyosuke Suzuki, director of forex in Japan for Societe Generale.

"Polls seem to suggest support for 'Remain' is rising, but the truth is we won't now until we see the results," he said.

This is the third time the currency pair has tested the US$1.47-48 band since May and a clear break of those levels could spark a wave of short-covering in the pound.

But traders also said any break may have to wait until the markets see the results of Thursday's referendum.

"Until then, there could be more ups and downs," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

The latest swing in opinion polls in favour of the "Remain" camp also adds to the risk of an especially sharp market reaction if the actual vote result, expected to reach markets on Friday morning in Asia, were to go the other way, Murata added.

"As a risk, we have to be on guard on the Tokyo morning of June 24... It could lead to a pretty serious situation if the result turns out to be 'Leave'," he said.

The implied volatility on pound options has fallen notably as investors see a diminishing chance of the "Leave" camp winning. The three-month volatility last stood at 13.4%, compared with a high of 18.5% last week.

The euro edged up 0.2% against sterling to 77.08 pence. Still, that wasn't far from Monday's near three-week low of 76.925 pence.

Against the dollar, the euro edged up 0.2% to US$1.1330.

The dollar index stood at 93.556, holding above a one-month low of 93.425 hit earlier this month, as the market awaited US Federal Reserve Chair Janet Yellen's testimony before the Senate Banking Committee at 10 a.m. Washington time (1400 GMT).

The dollar edged up 0.4% to 104.38 yen.

Earlier on Tuesday, the dollar slipped to 103.58 yen, bringing the yen close to its 22-month high of 103.555 set last Thursday.

After the yen's latest rise, Japanese Finance Minister Taro Aso said on Tuesday that Japan would respond to rapid currency moves in line with G7/G20 agreements, although the country would not intervene in the market so "easily".

The dollar briefly fell from around 104.10 yen to roughly 103.85 yen after Aso's comments, but later pushed higher. (Editing by Sam Holmes and Richard Borsuk)
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