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

By Hideyuki Sano

TOKYO (Reuters) - The British pound fell to an eight-week low against the dollar and a three-year low against the yen on Monday as investors grew more nervous of a referendum that could pull Britain out of the European Union.

The yen gained broadly, hitting a one-month high against the dollar and three-year high against the euro on those Brexit concerns and worries over political fallout after Sunday's mass shooting in the United States.

The British pound , which lost 1.4 percent on Friday, its second biggest fall so far this year, shed another 0.3 percent in Asia to $1.4200. 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 (LON:BARC).

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 17.6 percent , 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 (LON:STAN) 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 the mass shooting in the United States.

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.

Republican presidential candidate Donald Trump, who proposed a temporary ban on Muslims entering the United States earlier this year, responded aggressively saying the incident proved his warnings of "Islamic terrorism" were right.

Kadota at Barclays said: "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."

Sterling hit a near three-year low of 150.20 yen (GBPJPY=R), while the euro also slipped to a three-year nadir of 119.03 yen (EURJPY=R).

The dollar also fell more than one percent to one-month low of 105.735 yen .

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 statements 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 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 much.

The Australian dollar traded at $0.7383 , up 0.2 percent from late last week.