Pound advances for third day as global stocks, crude rally

[LONDON] The pound gained for a third day as a rally in global stocks brought some relief for this year's worst- performing major currency.

Sterling touched its strongest level this month versus both the euro and the greenback even as Bank of England governor Mark Carney said Tuesday that the impact on the UK economy of Britain leaving the European Union after a referendum in June would be "unhelpful."

In comments to a House of Lords hearing in London, Mr Carney said a Brexit would make funding the current-account deficit more expensive.

A Bloomberg survey showed 90 per cent of economists expected Mr Carney to provide some form of support if the UK votes to leave.

European stocks climbed to a three-month high as crude oil futures rose for the first time in five days.

"A marginal improvement in the news flow may be already sufficient" to push the pound higher, Morgan Stanley analysts led by Hans Redeker, the global head of currency strategy in London, wrote in a research note Tuesday.

"It may take persistently bad news" to stop it strengthening even if the risk premium remains high before the June 23 vote, they wrote.

The pound rose 0.8 per cent to US$1.4385 as of 5:38 pm London time, having climbed 0.9 per cent in the previous two days. Sterling appreciated 0.2 per cent to 79.05 pence per euro after reaching 78.82, the strongest level since March 31.

Risk Reversals

The premium for three-month contracts hedging against sterling losses versus the US dollar compared with those protecting against gains climbed to 4.79 percentage points on April 11, the highest since Bloomberg began compiling the risk-reversals data in 2003.

While the pound rallied Tuesday, it's down against most of its 16 peers this month.

Waning expectations of a UK interest-rate increase have also kept sterling weaker this year and minutes of the BOE's latest policy meeting released on April 14 showed officials considered the implications of Britain leaving the EU in their decision.

An ORB/Telegraph poll Tuesday indicated 52 per cent of Britons would vote for the UK to remain in the union, compared with 51 in April. The poll showed 43 per cent opting for a Brexit if the referendum were held today, versus 44 in the previous survey.

With new polls supporting the remain vote and a risk-on environment today given the rebound in oil prices and equities, "we're seeing a two-front attack on the short sterling position," said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd in London, referring to a bet that a currency will fall in value.

BLOOMBERG