Pound struggles to rally as risk of Brexit seen creeping higher

Bloomberg

Rallies in the pound are proving tough to sustain as recent opinion polls puncture investor confidence that the U.K. will choose to remain in the European Union in the June 23 referendum.
Sterling rose versus the dollar on Thursday after dropping the previous two days as surveys released this week signaled the ‘Leave’ camp pulling ahead of the ‘Remain’ side. A victory for ‘Leave’ would run counter to forecasts at Citigroup Inc., the world’s biggest currency trader, whose analysts said they were “increasingly concerned” as polling results have become both close and erratic.
Sterling fell the most in 10 weeks on May 31 and one-month volatility jumped to a seven-year high the next day. At UniCredit SpA, which was the most bullish of its peers on the pound versus the dollar in September, global head of currency strategy Vasileios Gkionakis predicted sterling may plunge to levels last seen three decades ago under a Brexit scenario, with Britain choosing to exit the bloc.
“Given all that is at stake, we are certainly concerned,” London-based Gkionakis said in an interview with Bloomberg Radio. “I think this is largely reflected in both the implied volatility in sterling, which has surged” and the that fact that the currency “seems to have lost its ability to rally” against the dollar and the euro as investors remain “largely cautious.”

Pound at $1.30?
While his central scenario is that the U.K. will stay within the EU, Gkionakis said in the event of a break-up, the pound may “easily” trade back to $1.30 and weaken to 90 pence to the euro.
The pound rose 0.1 percent to $1.4430 as of 12:03 p.m. London time, after sliding 1.5 percent over the previous two days. It was little changed at 77.61 pence per euro, having earlier touched 77.76, its weakest since May 18. A gauge of sterling’s one-month volatility versus the dollar was at 20.5 percent, having touched 21.1 percent on Wednesday, which was the highest since 2009.
Recent polls signaling a swing in favor of Brexit is “rattling markets that had grown complacent about the long-standing, if slight advantage, for ‘Remain’,” analysts at Citi, led by Tina Fordham, wrote in a client note.
“We continue to maintain a 30 to 40 percent probability of Brexit, but are increasingly concerned about the implications of continued closeness in the polls, erratic polling results” and growing political turmoil in the U.K.