Pound strengthens as lawmaker killing halts Brexit momentum

[LONDON] The pound rose, extending a rally from a two-month low set on Thursday, after the killing of a UK lawmaker fueled speculation voters will be more likely to favor remaining in the European Union.

Sterling gained versus 13 of its 16 major peers after both the "Remain" and "Leave" sides suspended campaigning on whether Britain should exit the EU in next week's referendum. Labour Party politician Jo Cox was murdered as she met constituents in her electoral district in West Yorkshire in the north of England.

The Guardian newspaper reported an eyewitness saying Ms Cox's attacker had shouted "Britain First." That's the name of a group that campaigns against immigration and Britain's membership in the EU.

"It's evident that the rally is being entirely attributed to the belief that yesterday's tragedy has increased the likelihood of the 'Remain' side holding sway in next week's referendum," said Ray Attrill, co-head of currency strategy at National Australia Bank Ltd in Sydney.

The pound rose 0.4 per cent to US$1.4262 as of 10:44 am in Tokyo on Friday after falling to US$1.4013 on Thursday, the lowest level since April 6. The UK currency strengthened 0.1 per cent to 78.94 pence per euro.

The prospect of Britain exiting the world's largest trading bloc has fueled nervousness across the globe, with the Federal Reserve saying on Wednesday the UK referendum was a factor in its decision to keep interest rates on hold.

Bank of England officials led by Governor Mark Carney left policy unchanged Thursday and said a vote for a Brexit may damage the country's economy and trigger further weakness in the currency.

The Swiss National Bank also kept rates on hold Thursday. Officials there have said the referendum has potential to cause "enormous stress" in Europe.

The pound dropped earlier on Thursday after the BOE reiterated warnings about the risks of leaving the EU in its final policy meeting before the June 23 vote. A measure of pound-dollar volatility based on option prices surged to the highest level on record this week as five polls in 24 hours showed the 'Leave' campaign pulling ahead.

Traders said the rally in the pound coincided with a deterioration in odds that Britons would elect to leave the EU as tracked by Oddschecker's survey of bookmakers' implied probability. They slipped below 39 after being above 44 a few hours earlier.

"If you do see uncertainty, that typically will drive voters to the status quo," said Karl Schamotta, director of foreign-exchange research and strategy in Toronto at Cambridge Global Payments, which hedges currencies for companies.

"We're seeing a trade that's entirely too crowded - at the end of the day, the market expectation remains that we will see a stay vote."

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