Pound hits six-month high versus dollar despite neck-and-neck referendum race

The pound hit a six-month high against the US dollar on Thursday, underpinned by expectations that UK voters will opt to remain in the European Union at Thursday’s referendum, despite opinion polls showing the race was neck and neck.

An Opinium survey gave the Leave campaign a one-point lead, at 45% to 44%, while a poll by TNS also showed Brexit was ahead at 43%, with Remain on 41%.

On the other hand, a ComRes survey for the Daily Mail and ITV News put Remain on 48% and Leave on 42%. Excluding undecided voters, it found remain leading Leave by 54% to 46%. Meanwhile, a YouGov poll gave Remain a two-point cushion, ahead of leave by 51% to 49%.

Despite the split polls, the pound rallied, which seemed to suggest investors were hopeful of a vote for the status quo.

Sterling hit its highest level against the US dollar in six months in Asian trading, at $1.4844.

Hussein Sayed, chief market strategist at FXTM, said: “Although most recent polls swayed toward the Remain camp in the last couple of days, the lead is still very narrow, which doesn’t explain the surge in pound.

“However, the markets are being completely reliant on the predictions from the bookies, which strongly expect Remain to win the referendum. If history is any indication, the bookmakers will get it right. They got it right on the general election last year, and on the Scottish referendum in September 2014, which made them a more reliable source than the polls.”

Sayed pointed out that in the event of a vote to leave the EU, the impact on sterling would likely be “disastrous”. He noted that whether it’s a 10%, 20% or more than 30% drop, it’s going to be severe.

In a strategy note on Wednesday, Citigroup said a Brexit scenario could push the pound down 15%.

Strategists at Societe Generale said a Leave vote would spark a flight to the CHF, JPY, Bunds, USTs, and gold.

“Given the scale of the UK current account deficit (5.2% of GDP) and possible BoE response (rate cut?), don’t rule out a disorderly fall in the coming days/weeks of GBP/USD below 1.30 and rise in EUR/GBP over 0.85,” they said.

“Currency markets and bookmakers are confident that the Remain vote will prevail (backing of two polls overnight), and investors have jumped the gun by bidding up GBP and stocks after polls turned in favour of the Remain camp last weekend. However, don’t underestimate the sheer number of undecided voters and the impact this could have.”