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Sterling rose briefly to hit Wednesday's high after data showed industrial output in Britain grew at its fastest pace in nearly four years in April, beating forecasts and wrong-footing investors who had positioned for a weak number. It gave up those gains quickly as growing uncertainty about whether Britain will remain in the European Union, drove many to sell the pound at higher levels.
Industrial output rose 2.0 percent in April after a 0.3 percent rise in March, the biggest month-on-month increase since July 2012, the Office for National Statistics said. Economists polled by Reuters had expected it to stagnate on the month. Manufacturing output also rose at its fastest pace since July 2012, up 2.3 percent on the month after a 0.1 percent increase in March.
Sterling rallied to $1.4580 from $1.4530 before the data was released, before dropping back to $1.4540, steady on the day. The euro fell to 77.97 pence, from 78.255 pence beforehand, before recovering to trade at 78.20, 0.1 percent on the day. "The data was evidence again that such strong data is unable to leave its mark on sterling," said Richard de Meo, director at Foenix Partners, a firm that offers currency hedging solutions to mid- and small-cap UK companies.
"The debate around the health of the economy has been sidelined and economic indicators have typically been represented by tiny blips in movements of a currency that is otherwise occupied with daily fluctuations in referendum polls." Sterling, which hit a three-week low against a basket of currencies on Monday, has been hostage to opinion polls before a British referendum on June 23 on whether the country remains in the European Union. Polls suggest it is a close race between "Remain" and "Leave".
Betting website Betfair put the chances of a vote to leave at 28 percent, lower than Monday when it was at 30 percent. Amid the uncertainty, the cost of protection against swings in the currency over the next month remained elevated and traded near its highest since late 2008. It was trading at just above 22 percent on Wednesday, with demand for options betting on more losses in the pound at record levels. "Investors have been largely rebalancing away from sterling exposure," said Viraj Patel, currency strategist at ING.

Copyright Reuters, 2016

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