The pound posted its biggest one-day rise for almost eight years and the FTSE 100 share index jumped 3% on Monday, as traders reacted to an apparent shift in support towards a remain vote in Thursday’s EU referendum.
A shift in opinion polls suggesting the remain camp had regained ground was enough to send the pound soaring. After coming under heavy selling pressure in recent weeks, it rallied more than 2.3% against a basket of other big currencies, the biggest percentage gain since October 2008. It rose more than 2% against both the US dollar and the euro.
The stock markets were in similar mood. The FTSE jumped 3% to 6,204, the biggest one-day rise since mid-February. The optimism was mirrored on other European bourses and Wall Street, where the Dow Jones industrial average was up more than 200 points, or 1.3%, at the time of the close in London.
New opinion polls and a shift in bookmakers’ odds prompted an abrupt change in financial market sentiment, catching some investors off-guard, said Jasper Lawler, an analyst at the spread betting and financial trading site CMC Markets.
“Global markets have had a Bremain bounce. A new optimistic tone has taken hold at the beginning of the final week before the Brexit referendum,” he said. “Risky assets, notably stocks, oil and the British pound have surged whilst haven positions in gold and the Japanese yen have been liquidated.”
The rallies came as Betfair, the online gambling site, said the implied probability of the UK remaining in the EU had risen to about 78%, up from 60 to 67% on Friday.
Shares in banks and housebuilders, which are considered some of the most vulnerable to the consequences of Brexit, were the top performers on Monday.
Royal Bank of Scotland shares were up 7%, Barclays 6.7% and Lloyds 7.6%. Among the housebuilders, Taylor Wimpey rallied 6.8% and Barratt Developments 6.8%.
There were warnings, however, that investors were setting themselves up for heavy losses if the referendum result on Friday does not go the remain camp’s way.
There were strong words from a former Bank of England deputy governor that markets were risking an “earthquake” in the event of Brexit. Sir John Gieve said many investors were unprepared for a potential vote to leave the EU.
“I think this would be a hell of a shock,” he told Bloomberg TV. “As you see, the polls are evenly balanced. I still think that a lot of people in our creditors are assuming that it’ll all come right. They’re not ready for an earthquake.”
The optimistic tone on UK markets was echoed in Germany, where the Dax share index rose 3.4% and in France where the CAC40 gained 3.5%. Experts were quick to remind investors, however, that shares and other riskier assets were selling off sharply just a few days earlier.
Chris Beauchamp, a senior market analyst at the online trading company IG, said: “The frenzy of buying that has been seen across global markets over the past few hours matches the panic selling we witnessed last week. Investors have rushed back to buy up stocks, currencies and commodities in a similar fashion to the way in which they abandoned them a few days ago.
“That such shifts in global markets can be occasioned by shifts in polling of a few thousand people in just one nation seems odd, but such is the importance of the Brexit referendum to global markets that all other concerns have been cast aside, at least for now.”
The sharp move in the pound against the dollar also reflected receding expectations of a near-term interest rate rise from the US central bank, especially following remarks from a key policymaker last week.
“It’s important not to get Brexit tunnel vision. Central banks still matter,” said Lawler. “A very dovish shift from the Federal Reserve’s James Bullard, who on Friday said the Fed may only raise rates once before 2018, has contributed to a drop in the US dollar, adding to sterling strength.”
