The pound is suffering as the forthcoming referendum on Britain’s membership of the European Union looms large. And with no date for the vote having been set, traders are signaling there’s little chance of a sustained rebound in the U.K. currency.
Sterling depreciated for a second week against the euro as Prime Minister David Cameron lobbied other government leaders on a deal that may allow him to hold a vote as early as June. A date is only likely to be set, though, following a summit in Brussels on Feb. 18-19.
Some polls show support for “Brexit” is increasing, with 45 percent of respondents to a YouGov Plc survey this week saying they’d vote to leave, while 36 percent wanted to stay and 19 percent were undecided. The economy is unlikely to prove sterling’s savior in the interim, with reports in the coming week forecast by analysts to show manufacturing and industrial production stagnated in December.
“The pound will remain choppy until we have a clear date for the EU referendum vote,” said Viraj Patel, a currency strategist at ING Bank NV in London. “Data comes last in the pecking order of factors influencing the pound now with global risks and Brexit coming before that.”
The U.K. currency slipped 1.2 percent in the week to 76.99 pence per euro as of 5:15 p.m. London time on Friday, having depreciated in 10 out of the past 11 weeks. It fell Friday to $1.4469, paring its weekly gain to 1.6 percent.
Options Bears
Traders have become more bearish on sterling versus the euro this year. The premium for three-month options to buy the shared European currency against the pound, over those to sell, climbed to 0.74 percentage point, from 0.24 percentage point on Dec. 31, data compiled by Bloomberg show.
Britain’s uneven recovery has prompted investors to push back the prospect of an interest-rate increase by the Bank of England until after April 2017, according to forwards prices.
Ian McCafferty, the BOE’s only policy dissenter of the past six months, dropped his call for higher rates on Thursday, while officials cut their growth and inflation forecasts. Sterling fell even as Governor Mark Carney said the whole rate-setting committee still thinks the next move will be an increase.
U.K. government bonds were little changed this week. The yield on the benchmark 10-year gilt held at 1.56 percent, while the price of the 2 percent security due in September 2025 was 103.90 percent of face value.
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