Sterling soars to 5-1/2-month high as Brexit fears recede

By Jemima Kelly

LONDON, June 21 (Reuters) - Sterling hit its highest level against the dollar since the start of the year on Tuesday, having posted its biggest one-day rise since 2008 in the previous session, as worries that Britain could vote to leave the European Union in two days' time eased.

Two opinion polls on Monday 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.

And though a third poll put those wanting to leave ahead by a whisker, bookmakers and betting exchanges - watched closely by investors - now put the chances of a "Brexit" at around 24 percent, down from 40 percent just five days ago.

Another poll, by Survation for IG (LSE: IGG.L - news) , was expected at 1230 GMT.

Having surged 2.1 percent on Monday, sterling jumped another 0.8 percent on Tuesday to $1.4788, its highest since January 4 - the first trading day of the year.

That left it up 0.4 percent on the year versus the greenback, and around 7 percent up from a seven-year low hit in February.

"I think we'll hop from poll to poll ... and you'd have thought that there will be another couple of wobbles before we're done," said Societe Generale (Swiss: 519928.SW - news) macro strategist Kit Juckes.

Juckes added 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.

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.

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, to below $1.15.

"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.

Against the euro, the pound climbed 0.3 percent to hit a three-week high of 76.95 pence, having also recorded its biggest daily rise since 2009 against the single currency on Monday. And it also rose 1.2 percent to 154.37 yen.

Those gains helped sterling reach a three-week high of 87.6 on a trade-weighted basis. (Reporting by Jemima Kelly; Editing by Nigel Stephenson and Raissa Kasolowsky)