Pound rises to one-month high as EU ‘remain’ camp gains momentum

Bloomberg

The pound rose to its strongest level in more than a month versus the dollar amid signs the “remain” camp is pulling ahead in the campaign over Britain’s membership of the European Union.
Sterling touched a six-week high against the euro, after posting its longest winning streak in 10 months through Friday, as U.S. President Barack Obama backed the U.K. government’s position that Britain’s economy and trading relationships would be at risk should it quit the world’s largest single market.
Since the official campaign started just over a week ago, pro-Europeans have taken the lead, with the Bloomberg Brexit Tracker putting the probability of an EU exit at about 20 percent.
“The remain camp had the strongest start to the campaign,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “That’s obviously helping provide some reassurance to investors that it’s reducing the perceived risk of a Brexit. It’s still early days and there could be twists and turns before the referendum result. But for now at least the market is more positive on the pound.”
Sterling climbed as much as 0.5 percent to $1.4475, the highest since March 18, and was up 0.4 percent at $1.4454 as of 11:30 a.m. London time. It jumped 1.4 percent last week in the best performance in almost two months.
Relief Rally
Britain’s currency was little changed at 77.86 pence per euro, after advancing to 77.52, the strongest since March 14. It gained for six days through the end of last week, the longest run since June.
The pound’s recent gains were a relief rally for a currency that’s still the worst major performer versus the dollar and euro this year, with declines of 2 percent and 5.5 percent, respectively — partly on concern a vote to leave the EU on June 23 would drive away investment.
Obama, who spoke in a BBC interview broadcast on Saturday, is only the latest representative of a major government or institution to warn about the dangers of Britain quitting the EU. Just this month, the International Monetary Fund cut its growth forecast for the nation and warned of “ severe” damage to the world economy if Britain leaves.
And the pound has become a political football, with leaders of the “remain” campaign repeatedly pointing to the currency’s losses and attributing them to the uncertainty posed by the possibility of a Brexit.
The result remains precarious, though. Opinion polls earlier this month showed that as many as one in three people were undecided about how to vote.

U.K. Manufacturers
Plan Price hike
U.K. manufacturers, hit by the weaker pound pushing up costs, are planning to try to pass on price increases to customers in the coming months to cope with the squeeze.
While the 5 percent drop in trade-weighted sterling this year helps factories’ competitiveness, it’s also helped to ramp up input costs at the fastest pace in two years, the Confederation of British Industry said in a quarterly survey published in London Monday.
While firms say they have found it hard so far pass on the burden to clients, they expect an improvement over the coming quarter, with costs declining and domestic prices rising. The measure of domestic prices increased to the highest since April 2014, according to the report.
The CBI survey reflects the impact that the global financial turmoil at the start of the 2016 and Britain’s referendum on EU membership has had on manufacturers. The pound has dropped against all major peers since the start of the year and measures of implied volatility have surged to a seven-year high ahead of the vote.
The CBI said ‘ investment intentions have “strongly” improved, with planned capital expenditure on buildings climbing to a near three-decade high. That’s in contrast to the assessment of the Bank of England and others, who’ve warned that the so-called Brexit vote is weighing on confidence and investment plans. Companies expect employment to remain stable in the three months through July.