The pound gyrates ahead of the referendum vote

Picture of pound coins

The pound hit the highest level against the dollar since early January before ending flat on Tuesday.

By late afternoon in London it was trading 0.2% lower at $1.4662. Earlier it hit $1.479, its highest level since 4 January, the first trading day of the year.

On Monday, the pound made its biggest one-day gain against the dollar in seven years.

The currency market has been volatile ahead of the EU referendum vote.

Last week, the pound was trading close to $1.41, its lowest level since early April.

On Tuesday, against the euro, the pound rose 0.28% to €1.3026.

Uncertainty effect

Bookmaker Betfair gave a 78% probability that the UK will vote to remain in the European Union, compared with a 65% chance on Friday last week.

Analysts said that a vote to leave the EU was likely to lead to a sharp drop in the pound.

"If the UK does leave the EU, there will uncertainty from a political standpoint and a fiscal and monetary policy standpoint," said independent markets analyst Brenda Kelly.

"This would drive investors from the pound into other currencies as it loses the safe haven effect it has come to enjoy over the last number of years,"

On the stock market, London's FTSE 100 closed 0.36% higher at 6,226.55, with investors reluctant to take big positions after a 3% gain the previous day.

French bank Credit Agricole recommended caution when trading the pound ahead of the referendum, but said a vote to remain in the EU would lead to further strong gains for the currency.

"We are advising our clients to go neutral into the vote, although we remain constructive," said Manuel Oliveri, currency strategist at Credit Agricole.

"If 'Remain' wins we expect sterling to rise to $1.55."

Trading in sterling has been volatile in the past few weeks in the run-up to Thursday's referendum.

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