Sterling near 7-year low on Brexit fears, others stabilize
Sterling licked its wounds near a seven-year low against the dollar on Thursday, hampered by worries Britain may exit the European Union, while a rebound in oil prices helped stem buying in the safe-haven yen.
The British pound last stood at $1.3942, down 3.2pc so far this week, with a test of its 2009 low of $1.35 within sight. It slid to $1.3878 on Wednesday, its lowest since early 2009.
Prime Minister David Cameron's announcement of a June 23 referendum on Britain's membership in the EU has 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 on the pound's options, with six-month volatility hitting the highest level since late 2011 on Wednesday.
Against the yen, the currency was last up 0.4pc on the day at 156.85 yen, having bounced back from a low of around 154.71 yen set on Wednesday, the pound's lowest level since October 2013.
The euro held near a 14-month high against the pound and last stood at 79.12 pence. On Wednesday, the euro rose as high as 79.25 pence, its highest level since December 2014.
The euro, however, has been on the defensive against many other currencies this week, on fears a British exit could mean more uncertainty for Europe.
The euro set a three-week low against the U.S. dollar of $1.09575 on Wednesday. It was last trading at $1.1030, still down 0.9pc on the week.
Against the yen, the euro regained some footing and rose 0.5pc to 124.20 yen. On Wednesday, it set a three-year low of 122.465 yen.
The yen stepped back from highs after a rebound in oil prices on Wednesday helped support risk sentiment, prompting traders to wind back their buying in safe-haven assets. Oil prices sagged on Thursday, but remained above Wednesday's lows.
The yen rose as high as 111.04 yen to the dollar on Wednesday, just off its 15-month high of 110.985 yen hit on February 11. The yen later backed off from such highs, and last stood at 112.57 yen versus the dollar.
A near-term focal point for the market is the meeting of G20 finance ministers and central bank governors in Shanghai on Friday and Saturday. The turmoil in financial markets seen this year and a global economic slowdown are expected to be key topics of discussion.
There has been scepticism though, over whether the G20, a forum of countries with diverse backgrounds including both developed and developing economies, will be able to agree on anything substantial to bolster global growth.
Market participants don't seem to be harboring excessively high hopes for the meeting, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
In any event, the need for the G20 to adopt urgent policy measures has probably decreased compared to a couple of weeks ago, since markets have stabilized somewhat, he said.
"If you ask whether this is a situation where the G20 needs to hurry and take some kind of emergency response, I personally think the answer is 'no'," Murata said.