[LONDON] Sterling rose half a per cent in early London trading on Friday and the euro added to gains in the past 24 hours on expectations that the killing of a pro-EU British MP may alter the balance of opinion in Britain's referendum on EU membership.
Speculation was rife among traders after the murder of Jo Cox on Thursday that Prime Minister David Cameron might push back the vote due to take place on June 23.
There has been no such signal from Downing Street, but either way some traders think the incident will turn the tide of public opinion after a series of polls showed the "Leave" campaign moving ahead.
Concerns Britain would send a shockwave through global financial markets and European politics by voting to leave the 28-country bloc have prompted a flood of money into traditional safe havens such as the yen and the Swiss franc.
"For now the bounce is only really visible in sterling," BNP Paribas strategist Michael Sneyd said.
"The biggest move this week has been the shift in Fed expectations, which we have seen in surge in the yen against the dollar. What's interesting is the euro has not reacted, which suggests there has been an increase in risk on the euro itself."
By 0839 GMT, sterling was up 0.6 per cent at US$1.4267, almost 2 US cents above Thursday's lows. It also gained 0.2 per cent to 78.85 pence per euro. The single currency firmed to US$1.1256 from a two-week low of US$1.1131.
The cost of hedging against volatility in sterling and the euro over the next week hit multi-year highs, reflecting the risk of a sharp move either way for both next Thursday.
The yen also remained within sight of almost two-year highs of 103.55 yen hit against the US dollar on Thursday.
Credit Agricole strategists closed some risk-averse bets in response to Thursday's events and a minimal recovery in investors' appetite for risk overnight, but they remained cautious.
"We believe it is premature to conclude that the risk of Brexit will abate from here," they said in a note.
"Polls in coming days should offer an indication of whether voter sentiment has shifted. We therefore remain fairly cautious on the outlook for sterling, the European and the commodity G10 currencies."
The US dollar last stood at 104.34 yen, unable to sustain a rebound towards the 105 mark.