Sterling soars to 10-week high as bets on brexit EBB

26/04/2016 07:54 AST

Sterling soared to a 10-week high against the dollar on Monday, while the cost of hedging against weakness fell sharply, as bets on Brexit eased after U.S. President Barack Obama voiced his support for Britain's staying in the European Union.

Since late last year, the pound's exchange rate has been at the mercy of any news affecting the chances Britain will vote to leave the EU. It has fallen over 8 percent since last November on a trade-weighted basis as investors have become increasingly jittery about the chances of Brexit.

But data from betting website Betfair showed the chances of Britain staying in the EU surged to their highest since last September, with the implied probability of a Brexit falling to about 27 percent, down from 37 percent this time last week.

That followed an intervention on the side of the "In" campaign by Obama, who said on Sunday that Britain might have to wait a decade for a free trade deal with the United States if it votes to leave the EU, following similar comments on Friday.

Sterling jumped almost 1 percent on Monday to as high as $1.4520, its strongest since Feb. 15 - five days before the June 23 referendum date was announced.

"Mr Obama might have moved bookies' odds on the UK leaving the EU, and that possibly discourages people from holding onto short sterling positions, but it's been a difficult few weeks for people in the foreign exchange market - it's been very choppy," Societe Generale macro strategist, Kit Juckes, said. The pound hit a six-week high of 77.52 pence per euro and, on a trade-weighted index, it gained half a percent to hit a five-week high.

BREXIT HEDGING
In the options market, the cost of hedging against volatility in sterling over the next three months fell by the most in a year to a one-month low of 13.75 percent.

Last week was sterling's strongest against the common currency since early March as odds swung in favour of the campaign to stay in the EU.

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