Diminished momentum in “Brexit” sentiment helped assuage fears of a United Kingdom break away from the European Union and triggered a surge in the British pound sterling and currency-related exchange traded fund.
The CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) increased 1.1% Wednesday. FXB is still down 2.0% year-to-date, weakening this year on uncertainty over a referendum vote over whether or not the U.K. should stay with the E.U.
The British pound strengthened Wednesday after a Ipsos Mori survey revealed that 55% of respondents were in favor of staying with the European Union while 37% wanted to break away, reports Mike Bird for the Wall Street Journal.
Related: Sterling ETF Finds Footing Ahead of Brexit Vote
Polls have showed mixed results, with online surveys revealing a much closer result while phone calls have suggested a lead for a remain. Ipsos Mori’s survey was conducted by phone.
“Market participants are trading on the headlines and seeing the remain camp ahead and therefore buying the pound,” Thu Lan Nguyen, a currency strategist at Commerzbank AG, told Bloomberg. “The market’s getting more sensitive to the polls as we get closer to the referendum.”
[related_stories]The GBP has acted as a barometer of sentiment in the run-up to the June 23 referendum, hitting a seven-year low against the U.S. dollar in February after the date of the vote was announced.
“If we vote for leave, it will be a pretty precipitous decline of sterling,” Allianz Global Investors Global Chief Investment Officer Andreas Utermann told Bloomberg. “The negative implications of an out vote could be very serious.”
Related: Brexit Sends Sterling ETF to All-Time Low
The government and the Bank of England have both said that a Brexit would hurt the economy. Moody’s also warned that it could downgrade U.K.’s credit rating if the country leaves the union. By leaving the union, the UK would need to negotiate a new trade agreement with the EU that would preserve some of the trade benefits of EU membership. Consequently, without the union, UK exporters would be pressured. The depressed GDP growth and more difficult export conditions would impact sectors like financial services, exporters, retail and property, which would also have an adverse effect on British equities.
The optimism for a remain vote also helped bolster related country-specific ETFs, with the iShares MSCI United Kingdom ETF’s (NYSEArca: EWU) up 0.7% Wednesday.
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CurrencyShares British Pound Sterling Trust