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FOREX-Sterling at 7-year low on Brexit fears, others stabilise

Published 25/02/2016, 11:40 am
© Reuters.  FOREX-Sterling at 7-year low on Brexit fears, others stabilise
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* Pound under spotlight as banks fret over "Brexit" referendum

* Pound's implied volatility at highest in many years

* Dollar/yen bounces back on rebounding oil

By Hideyuki Sano

TOKYO, Feb 25 (Reuters) - Sterling licked its wounds near a seven-year low against the dollar and a 2 1/2-year low versus the yen on Thursday on worries Britain may exit the European Union, while a rebound in oil prices helped stem buying in the safe-haven yen.

The British pound GBP=D4 slid to $1.3878 on Wednesday, its lowest since early 2009, and last stood at $1.3923, down 3.3 percent so far this week, with a test of its 2009 low of $1.35 within sight.

Prime Minister David Cameron's announcement of a June 23 referendum on Britain's membership in the EU sparked "Brexit" fears, with polls showing the "in" and the "out" camps neck and neck.

"Looking at the market's reaction, you can tell how financial professionals don't like 'Brexit'. At maximum, uncertainty may persist until the referendum," said Masatoshi Omata, senior client manager of market trading at Resona Bank.

The concerns drove up the implied volatility GBPVOL= on the pound's options, with six-month volatility GBP6MO= hitting the highest level since late 2011.

Against the yen, the currency was last at 155.97 yen GBPJPY=R , having dipped to 154.87 the previous day, its lowest level since October 2013.

The euro also firmed to its highest level against the pound since December 2014 at 79.25 pence EURGBP=D4 , but was on the back foot against many other currencies on fears a British exit could mean an uncertain future for Europe.

The euro EUR= fell to three-week low against the U.S. dollar of $1.09575 on Wednesday, last trading at $1.10155, and a six-week low against the safe-haven Swiss franc.

It also fell to a three-year low of 122.465 yen EURJPY= on Wednesday, before bouncing back to 123.38 yen by early Asian trade.

The yen stepped back from highs after a rebound in oil prices helped to lift global share prices, prompting traders to wind back their buying in safe-haven assets.

The yen JPY= rose as high as 111.04 yen to the dollar on Wednesday, just off its 15-month high of 110.985 yen hit on Feb. 11, but retreated to 112.09 yen.

Oil rallied on news of stalled loadings for the UK's North Sea oil and strong U.S. demand for gasoline, helping to lift Wall Street shares.

Still, worries about slowdown in the U.S. economy continue, with U.S. new home sales tumbling in January. Weakness in the manufacturing and energy industries may also be spreading to the service industries, which have been supporting overall growth, a survey showed. the Brazilian real BRL= showed a muted response after Moody's became the latest ratings firm to cut the country's debt rating to junk, downgrading it by larger-than-expected two notches.

The real reversed earlier losses to end almost flat at 3.9576 to the dollar, helped by rise in oil prices. (Editing by Richard Pullin)

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