Jane Foley, Research Analyst at Rabobank, suggests that the knock back to sterling from this morning’s worse than expected UK labour market release proved to be short-lived. Key Quotes “This behaviour enhances the view that the pound is more sensitive to political rather than economic news at present. Feeding the better tone has been this week’s EU referendum opinion poll results which have pared back the perceived degree of political uncertainty in the UK by suggesting that the ‘Remain’ vote is strengthening its lead ahead of the UK June 23 vote. Yesterday an ORB polls suggested that the ‘Remain’ vote could secure 52% of the vote against 43% for the ‘Leave’ camp. This poll also indicated that ‘Leave’ voters had become more motivated to vote. This morning a TNS poll has also suggested that the largest group of UK voters favour the status quo. That said, this poll continues to indicate that there is considerable scope for political change. The results suggest that 38% of voters favour remaining within the EU against 34% against. This fairly narrow margin between the two camps is emphasised by the finding in the same poll that 28% of UK voters are still undecided. This is a considerably larger percentage than the proportion of ‘undecideds’ determined by a YouGov poll last week. This poll had indicated that 17% were in the undecided camp. That said, the YouGov poll did suggest that only 59% had made a definite decision about which way they would vote. The underlying message from the polls is that one third or so of the population could still be swing voters. This implies that there is plenty of scope for volatility in the pound over the coming 10 weeks. While sterling is likely to be fixated on the indications of political risk over the next couple of months, there is a risk that this will be reflected as a drag on economic data. Taken together, these developments highlighted the risk that the economy could slow somewhat in Q2 While we would expect the pound to bounce on a Remain vote in June, the prospect of slower growth and a delayed BOE rate hike will take a toll. Assuming a Remain vote in June we expect EUR/GBP to push back towards 0.75 on a 3 mth view well above its November low.” For more information, read our latest forex news.