Pound tumbles, volatility jumps after surveys show UK exit momentum

Bloomberg

The pound slumped to a three-week low after polls showed more Britons favor exiting the European Union, reviving concern a June 23 referendum will throw global markets into turmoil and undermine confidence in the 28-nation trading bloc.
Sterling weakened against all 10 developed-market peers after two surveys showed more voters were willing to vote to leave the EU than those wishing to stay. A gauge of the currency’s expected swings against the dollar during the next month surged to a seven-year high.
The Bank of England has said uncertainty surrounding the referendum vote is damping U.K. growth, while global institutions including the International Monetary Fund and the Organisation for Economic Cooperation and Development are warning of dire fallout if Britain votes to quit the EU.
Federal Reserve Bank of Chicago President Charles Evans said the referendum is undermining confidence in the outlook at a time when the international economy is already losing
momentum.
The pound dropped 0.9 percent to $1.4383 as of 6:54 a.m. in London on Monday after sliding to $1.4353, the lowest level since May 16. One-month implied volatility in the pound-dollar pair surged to 21.6 percent, the highest since February 2009.
The pound has been a barometer of sentiment throughout the referendum debate, sliding to a seven-year low of $1.3836 in February before rallying as surveys in May and April showed the ‘Remain’ camp leading.
The euro weakened against the dollar Monday on concern a U.K. exit would damage trade and encourage other members to renegotiate their relationships with the EU. The single currency slid 0.2 percent to $1.1342.
The currency is set to recover to $1.47 by the end of the third quarter, according to the median estimate in a Bloomberg survey, more than 2 percent stronger than current levels.

Risk Reversals
The pound is the only currency among the Group of 10 that has weakened against the dollar this year.
The premium for one-month contracts protecting against a decline in the sterling versus the dollar, compared with those betting on an advance, surged to 6.7 percentage points last week, the most in risk-reversals data compiled by Bloomberg going back to 2003.
The premium was at 6.36 percentage points on Monday.