Sterling rallies as Brexit worries ebb, yen drops

[June 20, 2016]  By Anirban Nag

LONDON (Reuters) - Sterling jumped nearly 2 percent against a trade-weighted basket of currencies on Monday after opinion polls swung in favor of the campaign for Britain to stay in the European Union, boosting risk sentiment and sending the safe-haven yen tumbling.

The implied probability of a "Remain" vote in Thursday's referendum rose to around 78 percent after falling as low as 60 percent last Thursday, according to odds from gambling website Betfair.

Trade-weighted sterling rose 1.9 percent to 86.9 while against the dollar, sterling was up 1.8 percent at $1.4630 <GBP=D4>. It earlier hit $1.4673, its highest in three weeks, as it extended a recovery from Thursday's more than two-month trough of $1.4013. The rise put sterling on track for its best one-day performance in seven years.

The pound jumped 2.5 percent to 152.92 yen, pulling away from a three-year trough around 145.34 also set on Thursday. The euro fell 1.5 percent to 77.40 pence.

Investors reacted after three of six opinion polls published over the weekend showed a shift toward keeping Britain in the EU, with some citing the killing last week of pro-EU lawmaker Jo Cox as a factor.

"The outcome of the referendum is wide open again," said Ulrich Leuchtmann, currency strategist at Commerzbank. "But at least "Leave" no longer seems the most likely scenario. Should the next polls suggest that the change of sentiment persists euro/sterling may ease further."

Prior to the latest polls, data from the Commodity Futures Trading Commission released on Friday showed speculators reduced their net short positions against sterling in the latest week, from a three-year high. The pound still declined by around 3 percent against the dollar during June 7-14.

Indicating a general pick-up in risk appetite as Brexit worries eased, European shares were trading higher and U.S. stock futures rose.

The yen fell across the board, offering some relief for Japanese policymakers concerned about the currency's recent strength.

An employee is seen walking over a mosaic of pound sterling symbols set in the floor of the front hall of the Bank of England in London, in this March 25, 2008 file photograph. REUTERS/Luke Macgregor/files

Bank of Japan Governor Haruhiko Kuroda on Monday acknowledged for the first time that the central bank had failed to hit its inflation target in the two-year timeframe set in 2013, keeping alive chances for more stimulus in coming months.

Some analysts said the moves on Monday could easily reverse and Japanese trade data showed the country's exports fell at the fastest pace in four months in May, highlighting a slowing global economy.

"Yen may consolidate recent gains, but today's release of Japan's May trade suggests that deflationary pressures pushing up real yields may prevail," Morgan Stanley said in a note.

The dollar climbed 0.5 percent to 104.60 yen, while the euro jumped 1 percent to 118.45 yen, well above Thursday's three-year low of 115.51. Against the dollar, the euro gained 0.4 percent to $1.1325.

(Additional reporting by Lisa Twaronite; Editing by Gareth Jones)

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