Pound's rally amid slower UK growth shows Brexit's dominance

[LONDON] The pound rose for a fourth day versus the dollar as data showed that UK economic growth slowed in the first quarter, further evidence that the currency's direction is being driven by investors' view on the nation's June referendum on its membership of the European Union.

Sterling touched the highest level versus the US currency since February on Tuesday amid signs the "remain" camp was pulling ahead in the campaign over Britain's membership of the EU.

While the referendum is still about two months away, it has dominated the pound's direction since the start of the year, acting as barometer of sentiment throughout the debate. The UK currency moved in its tightest trading range in a month against the dollar on Wednesday.

"UK growth conditions have not been the key driver of the currency this year," said Manuel Oliveri, a foreign-exchange strategist at Credit Agricole SA's corporate and investment- banking unit in London. "Everything has been about Brexit fears."

The pound rose 0.2 per cent to US$1.4604 as of 11:51 am London time, having gained 1.8 per cent in the previous three days. It climbed to US$1.4639 Tuesday, the highest since Feb 4. Sterling was little changed at 77.46 pence per euro.

Growth slowed to 0.4 per cent from 0.6 per cent in the final three months of 2015, as forecast in a Bloomberg survey of economists. The estimate, published by the Office for National Statistics Wednesday, matched the weakest pace since the end of 2012.

"Sterling has been a bit volatile, and we believe the currency should become more volatile" due to concerns over Brexit and speculative short positioning, which is "quite elevated," Mr Oliveri said. A short position is a bet an asset's price will decline.

BLOOMBERG