Sterling fell for the first time in four days against the dollar on Wednesday, reverting to a trend that has seen the pound fall almost 7 percent in the past four months, amid worries that Britain will vote to leave the European Union. Most opinion polls show the "In" and "Out" campaigns neck-and-neck before the June 23 referendum, but an ICM survey on Tuesday found support for leaving the EU at 45 percent, three points ahead of the campaign to keep Britain in.
A recent Reuters poll of bank strategists projected that sterling would fall 7 percent in the case of a Brexit. Some banks think the pound might lose as much as a fifth of its value. Sterling fell 0.4 percent on Wednesday to $1.4221, more than a cent below a one-week high of $1.4348 struck on Tuesday after data showed British inflation picking up in March.
"The question around sterling right now is how big a factor is marginal news flow on Brexit risks. The answer is: not much. We had three days of strong rallying, and today it's taking a breather," said UBS Wealth Management strategist Geoffrey Yu. A dramatic shift in favour of the "Out" camp would be needed for sterling to fall much from its current levels, Yu said. The International Monetary Fund waded into the Brexit debate on Tuesday, saying a British exit from the EU would risk causing "severe global damage" that would drag down UK growth for years to come.
Against a euro that was sharply weaker across the board, however, sterling gained 0.4 percent to trade at 79.44 pence per euro. "Brexit would be worse for the UK than the rest of the EU, but it would undoubtedly be bad for all of Europe's economic prospects," said Kit Juckes, a currency strategist at Societe Generale. The "In" camp says leaving the bloc would cause damage in a country with a trade deficit of 12 billion pounds, its widest in eight years, and a current account deficit that soared to 7 percent of GDP in the final quarter of 2015.
In a note, Westpac recommended selling sterling against the dollar until the vote is out of the way. "Even if the polls break more clearly toward `Bremain' it's hard to see sterling forcefully unwinding its Brexit premium until the certainty of the vote is out of the way," it said in the note.