Sterling falls to eight-week low on Brexit anxiety, yen gains broadly

TOKYO - The British pound fell to an eight-week low against the dollar on Monday ahead of a referendum that could pull Britain out of the European Union. The yen gained broadly on those Brexit concerns and worries over political fallout from the rise of presidential candidate Donald Trump. The British pound GBP=D4, which lost 1.4 percent on Friday, its second biggest fall so far this year, shed another 0.5 percent in early Asian trade to $1.4182. It fell to as low as $1.4159, its weakest since April 18. "The referendum is getting nearer and opinion polls are showing a very tight (presidential) race," said Shin Kadota, chief FX strategist at Barclays. Implied volatilities on sterling soared as market players felt the need for protection against the currency's fall. Sterling's three-month volatility shot up to 17.2 percent GBP3MO=, its highest level since early 2009. Opinion polls published at the weekend showed voters were still divided over whether to leave the European Union. The referendum is on June 23. "I would expect volatilities to rise further and the markets will become even bleaker as we head towards the referendum," said Koichi Yoshikawa, executive director of finance at Standard Chartered Bank. The pound also hit a one-month low against the euro, which rose to as high as 79.355 pence EURGBP=D4. It last stood at 79.135. The safe-haven yen meanwhile surged to its highest level in three years against both sterling and the euro as investors sought shelter in the Japanese currency with sentiment taking a further battering following a mass shooting in the United States on Sunday. On top of worries about Brexit, the mass killing in Orlando, Florida, has raised concerns about further social and geopolitical tensions in the United States, at a time when many countries are increasingly turning inward-looking. "At the root of Brexit and the Trump phenomena are the issues of immigrants and income gaps. The incident could have some repercussions on these issues," said Barclays' Kadota. Sterling hit a near three-year low of 150.28 yen GBPJPY=R, while the euro also slipped to a three-year nadir of 119.215 yen EURJPY=R. The dollar also fell to one-month low of 106.075 yen, and last stood at 106.26 yen JPY=, down 0.6 percent so far on the day. While many market players think the Bank of Japan will keep its policy on hold at its meeting on June 15-16, that perception could change if the dollar falls below its 18-month low of 105.55 set on May 3. The central banks of the United States, Britain and Switzerland all hold policy setting meetings this week, but investors expect them to stand pat given uncertainty over the looming UK referendum. The Federal Reserve could try to keep alive expectations of a rate hike in July, however, through statement and comments from Chair Janet Yellen. Money market futures <0#FF:> are currently pricing in less than 20 percent chance of a July a hike, near the lowest level in recent months. The euro EUR= slipped to $1.12475, its lowest since June 3, giving up more than a half its gains made after disappointing U.S. employment data on that day. The safe-haven Swiss franc held firm, hitting 1.0840 franc per euro EURCHF=R, its highest level against the euro in three months. A run of economic data from China mostly came in line with market expectations and did not move markets. The Australian dollar traded little changed at $0.7378 AUD=D4. -Reuters