The pound dropped toward a two-month low versus the dollar as traders awaited the Bank of England’s final policy meeting before the U.K. votes on its membership to the European Union.
Sterling weakened against all but one of its 16 major peers, dropping to a three-year low versus the yen. The June 23 referendum has dominated the currency market with volatility surging as polls suggested a lead for the “Leave” campaign this week.
Last month BOE Governor Mark Carney said that Brexit could lead to a recession in the U.K. as the central bank downgraded its growth forecasts.
While no economists are forecasting a change in policy on Thursday, markets are pricing in a greater chance of an interest-rate cut than an increase in the future as the risk of Brexit rises.
Separately, data has been offering a mixed picture of the U.K. economy. Reports this week showed inflation holding at 0.3 per cent, the unemployment rate unexpectedly falling and wage growth accelerating.
The pound fell 0.3 per cent to $1.4165 as of 6:51 a.m. London time. It touched $1.4091 on Tuesday, the lowest since April 14. Sterling weakened 0.4 per cent to 79.61 pence per euro. The U.K. currency dropped as much as 2.2 per cent to 147.33 yen, the lowest level since June 2013.
A two-week 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 more support for leaving the EU than remaining.
© 2016 Bloomberg LLP
