Sterling slips from highs after neck-and-neck Brexit poll

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By Jemima Kelly

LONDON, June 21 (Reuters) - Sterling pulled away from a 5-1/2-month high against the dollar on Tuesday after a poll showed the campaign for Britain to stay in the European Union has lost some of its lead ahead of Thursday's referendum on EU membership.

The telephone poll, which was conducted by Survation for spread-betting firm IG (LSE: IGG.L - news) on Monday, put support for "In" at 45 percent, ahead of "Out" on 44 percent, IG said. Survation's previous survey, published late on Saturday, had shown "In" on 45 percent, 3 points ahead of "Out".

Having earlier surged to $1.4788, its highest since the start of the year, sterling trimmed some of its gains to trade at $1.4708 by 1325 GMT.

That still left it 0.2 percent up on the day, having risen over 2 percent on Monday, its biggest one-day rise since 2008, as worries about a Brexit receded.

Two opinion polls on Monday had suggested that the "Remain" camp had recovered some ground ahead of Thursday's referendum on EU membership, following the murder of a pro-EU lawmaker, though at third put those wanting to leave slightly ahead.

"Markets are quite fixated on any shift in sentiment," said UBS Wealth Management currency strategist Geoffrey Yu. "All (sterling) needed was a catalyst - perhaps this (the new poll) was what people were waiting for to take some longs off or to let the short-covering come to a brief halt for a while."

"But I wouldn't read too much into it - judging by where implied volatility is in sterling, it's only natural that it's going to be quite volatile, with trade outside of its usual parameters," Yu added.

The cost of one-week sterling/dollar implied volatility, derived from an option that covers the referendum and its results, hit a record high of more than 50 percent on Friday but eased to about 38 percent by Tuesday - still higher than any time during the financial crisis of 2008-2009.

STERLING VULNERABLE

Brexit worries have dominated sterling since late last year. Britain's hefty current account deficit - 7 percent of output in the last quarter of 2015 - makes the economy particularly vulnerable to any pull-back in investment flows, which economists reckon would happen if Britain votes to leave the EU.

But while polls continue to show the outcome of the referendum as too close to call, bookmakers and online betting exchanges - closely watched by investors - are more confident, offering odds implying around a 76 percent chance of a vote to stay in the EU.

"The pound is massively vulnerable if there is a vote to leave," said Rabobank currency strategist Jane Foley. But she added that even a vote to stay in the EU could lead to a long spell of that most disliked phenomenon, political uncertainty, unless the "In" camp secures an emphatic victory.

"A lot of uncertainty will remain, and that could mean that sterling's rally could fizzle out at some point really quite soon," she said.

Societe Generale (Swiss: 519928.SW - news) macro strategist Kit Juckes said that although he still expected a considerable "relief rally" if Britain votes to stay in the EU, the fall in the event of a Brexit would be of a greater magnitude.

George Soros, the billionaire who earned fame by betting against the pound in 1992, said in an opinion piece published by the Guardian newspaper that a Brexit would trigger a bigger and more disruptive sterling devaluation than the fall on Black Wednesday 24 years ago.

Soros said a vote to leave could see the pound fall by at least 15 percent, and possibly more than 20 percent.

Against the euro, the pound rose half a percent on the day to trade at a three-week high of 76.57 pence. It (Other OTC: ITGL - news) had also recorded its biggest daily rise since 2009 against the single currency on Monday. (Reporting by Jemima Kelly)