Currencies suffer as Brexit looms

The financial site published details of sixteen major currencies and established that "all but three have seen a jump in the cost to hedge against big declines."

Britons go to the polls this week in a historic referendum to decide whether to remain in the European Union or leave. Various economic experts have warned of the dangers to several markets if Britain were to vote to leave the EU.

Various economic experts have warned of the dangers to several markets if Britain were to vote to leave the EU

The pound saw the biggest increase in loss-hedging costs, followed by the euro as many start to get nervous at the prospect of leaving the bloc.

The jump in options costs is a sign that foreign exchange is reverting to what’s known as a risk-on, risk-off market, where local fundamentals are of less interest than global sentiment. The UK campaign has become a much internationalised affair in recent days and weeks, with several political and economic leaders declaring that a Brexit would be bad for business.

“When you have a risk-off trigger that’s big enough, there tends to be contagion -- it’s just the way it is,” said John Hardy, the Hellerup, Denmark-based head of foreign-exchange strategy at Saxo Bank A/S.

As markets opened on Monday, new momentum for the Remain campaign was reflected in the pound's steepest advance in almost 3 months.

“The pattern we’ve established so far will probably intensify” on a vote to leave, Hardy said, “so you’ll see the Swiss franc being the strongest from safe-haven-seeking as an immediate reaction, and the euro less so because the questions for Europe will suddenly loom very large.”

New momentum for the Remain campaign was reflected in the pound's steepest advance in almost 3 months

For the majority of currencies, the increase in options costs began a fortnight ago as the referendum came into sight. The Leave campaign had started to show signs of improved performance, which seems to have halted in today's markets.

Among the 16 major currencies, the only ones not to have seen an increase in bearish bets are Brazil’s real - which has been rallying as the nation overcomes its own political upheavals -- the yen and the Swiss franc.

The pound has been volatile due to polls throughout the referendum campaign, dropping as much as 6.1 percent year-to-date at the end of February, before briefly wiping out its 2016 drop twice last month as surveys suggested the “Remain” camp was increasing its lead.

Sterling reached its lowest point in two months last Saturday, a week out from the referendum. The result appears to be difficult to call at this stage, as opinion polls change almost as much as the value of the UK currency.