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Pound's first two-month gain since 2013 defies EU vote concern

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The pound posted its first back-to-back monthly gain versus the US dollar since 2013, in a move traders say reflects a lower perceived risk in Britain voting to leave the European Union in a June referendum.

[LONDON] The pound posted its first back-to-back monthly gain versus the US dollar since 2013, in a move traders say reflects a lower perceived risk in Britain voting to leave the European Union in a June referendum.

Sterling advanced to an almost four-month high Friday, completing a third week of gains, even as data showed UK consumer confidence dropped to the lowest in more than a year. Two days earlier, a report indicated economic growth slowed in the first quarter.

Investors' muted reaction to economic data this week may suggest the currency's direction is being driven more by their view on the outcome of the June 23 vote, as recent polls show pro-EU Britons have taken the lead, following the official start of the campaign on April 15.

The pound strengthened against most of its major peers this month, having dropped in February to its lowest level since 2009 versus the US dollar after the referendum was announced.

"The only thing right now being in focus for sterling is the probabilities for the different outcomes in the referendum," said Richard Falkenhall, a currency strategist at SEB AB in Stockholm.

"Last week we started to see signs again that the 'remain' side increased the lead over the 'leave' alternative. As soon as this started to show up in polls, that supported sterling."

Sterling advanced 0.1 per cent to US$1.4623 as of 4:45 pm in London, after rising to US$1.4670, the highest since Jan 6. Even as it slipped 0.7 per cent to 78.28 pence per euro, the pound recorded its first monthly gain since November versus the shared currency.

Gilt Purchases

Overseas investors bought a net £7.8 billion (S$15.3 billion) of gilts in March, after outflows of £3 billion in the previous month, Bank of England data showed Friday.

"After the initial fears of a Brexit vote and the financial shock that would usher in, sterling has rallied," reflecting the "relative stability of market odds on the EU vote", said Robin Marshall, director of fixed income at Smith & Williamson Investment Management in London.

"Some of that inflow has likely gone into gilts."

Gilts climbed on Friday, with the 10-year yield falling two basis points, or 0.02 percentage point, to 1.59 per cent, after dropping five basis points in the two previous days.

The 2 per cent security due Sept 2025 rose 0.16, or £1.60 per £1,000 face amount, to 103.55.

BLOOMBERG