Sterling nears second weekly decline ahead of Brexit vote

Expectations for price swings in the pound climbed for a sixth week to a seven-year high as anxiety about a potential British exit from the European Union gripped investors.

Sterling headed for its second weekly decline versus the dollar before the UK votes on June 23rd on whether to remain in the EU.

The currency tumbled as much as 1.1 per cent on Monday after polls signalled a lead for voters who support leaving the 28-nation bloc.

It climbed as much as 1.5 per cent the following day amid speculation a mistyped transaction had triggered automatic orders to sell or buy currencies to avoid losses.

The risk alone of a so-called Brexit could be prompting major central banks to delay policy changes until after the vote - either to avoid tightening prematurely, in the case of the Federal Reserve, or to keep stimulus available should it be needed later, as with the European Central Bank.

Fed Reserve Chair Janet Yellen warned this week a UK vote to leave the EU would have "significant economic repercussions," a concern echoed by counterparts including Reserve Bank of India Governor Raghuram Rajan.

"Volatility staying high means it's not just Brexit itself but the fallout from the vote that markets are looking at," said Masashi Murata, a vice president at Brown Brothers Harriman and Co in Tokyo.

“The ECB will likely pump in cash if there is a Brexit.”

Implied volatility for one-month options on the pound versus the dollar rose to 23.5 per cent, the highest since January 2009, and more than double the level at the end of April.

Expectations for price swings have climbed every week since the period ended April 29th, the longest streak of increases since late February.

Sterling was little changed at $1.4448 at 6:24 am in London, and has depreciated 0.5 per cent this week.

- Bloomberg