The results of the Ipsos MORI phone poll, published on Wednesday, showed the Remain campaign at 55%, with Leave trailing at 37%. The pound rose from $1.44 on Wednesday to $1.47 by Thursday, taking it back to levels seen at the start of the month when US president Barack Obama cautioned that the UK would find itself “at the back of the queue” in negotiations with the US if it chose to leave the EU.
The Ipsos poll numbers were at odds with the positioning of futures traders, however. According to Barclays figures, leveraged and institutional accounts have been net short sterling. Leveraged accounts added to their shorts in recent weeks while trimming long positions in euro/pound.
"Brexit is now seen as the biggest tail risk by far," said Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, summarising the results of the bank's survey of more than 200 professional fund managers, representing $619bn in assets.
The allocation of fund managers to UK equities "plunged to the lowest level since November 2008, while sterling shows the second most undervalued reading on record", said Hartnett, suggesting that current pricing represents a good opportunity for traders willing to sell volatility on UK-exposed assets.
Pound/US dollar options traded at CME expiring shortly after the referendum have been priced at nearly 17% implied volatility in recent sessions.
"Average bookmaker odds’ implied probability of an exit and average polling intentions have decoupled further, while one month referendum-window sterling-implied volatility is back to levels last seen before President Obama’s visit to the UK," said Barclays analysts led by Marvin Barth.
According to data from Barclays, these contracts are priced in the top percentile of the range since 2009. Higher risk premiums are not only evident in currency markets, as had been the case earlier in the year.
"FTSE 100 at the money implied volatility is at a five year high relative to that of the EuroStoxx 50," said equity derivatives strategists led by Ben Bowler at Bank of America.
But some analysts believe that Brexit risks ought also to be weighing on equity prices more than they have been.
"The awareness of Brexit in the press has once again surged with sterling ATM implied volatility climbing but not yet confirmed by UK CDS,” said Sean Darby, chief global equity strategist at Jefferies. “Not only does the main UK equity index fail to reflect the underlying economy, but the drivers for the equity market and economy are also disparate."
One area where plausible risks remain underpriced is in the euro, analysts claim.
"The sharp rise in sterling implied volatility has not been reflected in euro volatility," said currency strategists at Credit Suisse on Thursday, with near term options priced well below year to date and one year highs. The Credit Suisse strategists flagged long euro volatility trades as an attractive hedge against a vote for the UK to leave the EU, as there would be negative consequences for the currency.
