FX round-up: Sterling dives as nervy traders flee on renewed Brexit fears

Nervy traders dumped sterling against most major crosses today as revitalised fears of Britain voting to leave the European Union on 23 June pulsed through the market.

At 17:04 BST, sterling had flopped 0.61% to $1.4394 and slumped 0.87% to €1.2898. It dived over 1% against the kiwi, yen and rand, but less against the loonie and aussie.

This followed a YouGov poll for the Times, which showed parity between the Brexit and Bremain camps, each on 41%. On Tuesday, an ICM/Guardian poll revealed 45%-42% split favouring Brexit.

Moreover, Irish bookmaker Paddy Power has slashed its odds on Britain voting to leave the EU, from 9/2 to 5/2, with the remain vote still solid at 2/7.

Organisation for Economic Co-operation and Development fanned the flames on warning UK's economy would be subjected to severe shocks if it left the EU, with gross domestic product projected to be 3% lower in 2020 than if it remained.

"June has started with less of a bang and more of a pop today," said IG market analyst Joshua Mahony, pointing to a tumble in crude prices, and UK, European and US stocks indices.

"Investors were sent packing towards havens and away from the risk assets that have been so reliable of late," observed Mahony.

FXTM chief market analyst Jameel Ahmad noted the abundance of downside risks for sterling, adding the unit had "limited upside strength potential" even in a Bremain scenario.

Sterling's run-up prior to this week was premised on polls that suggested Britain was more likely to remain in the EU.

Economic data out today offered little support sterling.

Manufacturing purchasing managers' index data abounded. The final May readings for the euro zone and US were in line with forecasts, but that for the UK was a jot ahead, as was China's.

Other data showed a sharp braking in UK mortgage lending in April. Across the Atlantic, US factory activity unexpectedly expanded in May, as consumer confidence surprisingly worsened.

Meantime, OECD lowered its US economic forecast, cutting its outlook for US GDP to 1.8% in 2016, from an estimated 2.5% given in November. GDP rose 2.4% last year.

At 17:04 BST, the dollar was modestly lower on major crosses, but was notably down 1.07% to 109.54 yen, which extended its month rise. The dollar-index spot price fell 0.32% to $95.587.

Ahmad believed greenback demand was stable due to renewed US interest rate optimism, thanks in part to hawkish murmurings from several but not all Federal Reserve officials in recent weeks.

But, he cautioned, "it has become extremely difficult to construct an argument for the GBPUSD to trade any higher than $1.50 and this might be the limit for the GBPUSD throughout the second half of 2016."

Looking ahead, Mahony opined that while it was clear that Wednesday seemed to "have been a particularly volatile day, this could just be the beginning."