The pound has hit a 2016 high against the dollar and stocks have continued five straight days of gains as Britons headed to polling stations to cast their vote in the EU referendum.
Sterling rose in early trade following the results of two opinion polls.
One by ComRes for the Daily Mail and ITV News put the campaign for the UK to remain in the EU on 48 per cent and the Leave campaign on 42 per cent.
A YouGov poll also showed Remain ahead of Leave by a small margin.
The pound hit $1.4844 against the dollar for the first time in 2016 in early trading and continued to rise to trade at $1.4875 by lunchtime, up 1.16 per cent on the day.
A Populus poll at noon on Thursday showing Remain on 55 per cent to Leave’s 45 per cent did not have an immediate impact on the value of the pound, suggesting that it might have already been priced in.
Paresh Davdra, CEO and co-founder of RationalFX, said that traders were holding their bets until the results of the referendum.
“Bookies are backing Remain and so the pound continues to trickle upwards, though trading is light. We are in the calm before the storm, with 10 o’clock this evening being the moment of truth for traders,” he said.
The cost of insuring for changes in the value of the pound, or sterling implied volatility, spiked in the night. Hedging the pound gets more expensive as more people look for protection against a strong movement over the next 24 hours.
The FTSE 100 was up 1.26 per cent on the day by lunchtime at 6,340.25, led by mining shares.
Currency and stocks have swung with the results of exit polls, losing value when the Leave campaign was ahead in May.
But the value of sterling and the FTSE 100 has rallied in the last week as polls have shown Remain to have a slight lead.
“Rather than heeding caution and remaining on the sidelines until this potentially major event risk has passed, traders appear to be betting on remain prevailing and are positioning accordingly,” said David Cheetham of XTB.com, a city firm.
Kit Juckes of French bank Societe Generale said that a vote to leave the EU could cause the pound to drop to 30-year lows.
“On a Leave decision, we expect the pound to fall to $1.30-$1.35 quickly and we look for an eventual fall to $1.20-$1.25,” Juckes said.
The Bank of England has warned that a vote to leave the EU would cause the value of the pound to fall, “perhaps sharply”, while households would delay spending causing lower demand and rising unemployment.
“The outcome of the referendum continues to be the largest immediate risk facing UK financial markets, and possibly also global financial markets,” Bank of England analysts said.
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