World Economy

Sterling Dragged Down by “Brexit” Worries

Sterling Dragged Down by “Brexit” WorriesSterling Dragged Down by “Brexit” Worries

Sterling retreated further from a one-month high against the dollar on Tuesday, after a new poll suggested slightly more Britons want to leave the European Union than stay, fuelling fresh uncertainty about a possible “Brexit”.

The pound had rallied from a seven-year low of $1.38 struck in late February to a one-month high of $1.44 on Friday as some of the concerns about Britain leaving the European Union receded, Reuters reported.

But traders said the new poll published in the Daily Telegraph on Tuesday pushed the pound lower. The ORB opinion poll showed support for the European Union stood at 49%, two percentage points ahead of the campaign for staying in the EU.

Sterling was down 0.8% at $1.42, losing ground for the second straight day. The euro was up 0.6% at 78.10 pence.

“The new poll has led to some selling in the pound,” said a spot trader. “Given the recent rise, we could see investors going back to building short positions against sterling.”

Investors worry that Brexit could drag down growth, push back UK rate hike expectations and also threaten the huge foreign investment flows Britain needs to balance its current account deficit, one of the biggest in the developed world at about 4% of output.

Most traders said sterling will struggle before the vote on June 23, particularly if labor data on Wednesday adds to signs that uncertainty over the referendum is worsening a slowdown in UK growth.

There is also the British budget this week. British Finance Minister George Osborne said he would announce deeper cuts to public spending this week in order to protect his plan to eliminate the budget deficit from a weakening of the economy.