Sterling rose 2.3 per cent to $1.4693, the biggest one day gain in over seven years. The last time it rose this sharply was 12 September 2008, days before Lehman Brothers filed for bankruptcy.
“Three polls over the weekend showed a tangible swing back towards remain and it looks like investors are reacting to this data… there has been heavy pound buying,” says Joe Rundle, head of trading at ETX Capital.
It’s the latest swing for sterling, which has risen and fallen in line with poll results. As surveys showed the leave camp had the edge in the preceding weeks, the pound fell 4.3 per cent.
Read more: Is a weaker pound such a bad thing?
The volatility has been unnerving and there may be more to come. Bank of England governor Mark Carney has said the pound could fall, “perhaps sharply” if Britain declares an intention to leave the EU.
Famous investor George Soros has predicted sterling could plunge 20 per cent on a leave vote. Soros has form - he is notorious for correctly predicting currency swings and made a fortune out of the 15 per cent slump in the pound when Britain exited the European Exchange Rate mechanism in 1992.
The outcome still remains highly uncertain. As Jim Reid from Deutsche Bank has noted, evidence from the Scotland and Quebec independence referendums suggests the leave polls need to show a 5 per cent lead for there to be high confidence of an out vote.
The pound is likely to be extremely volatile up until the Thursday referendum, and judging by recent events traders will push it into further weakness if the leave camp wins.
The relative strength of sterling has an impact on many aspects of the economy – and its health too.
Some experts argue a weaker pound won’t necessarily be a negative. This is because goods priced in pounds would be cheaper for overseas buyers, and thus, in theory, they are more attractive to international buyers.
In practice there are other variables at play, but nonetheless many central banks including Japan’s, China’s and the European Central Bank are all trying to devalue their currencies for this reason. It’s been dubbed “currency wars” and has been going on for years – could the UK join in?
From this perspective, a fall in sterling doesn’t mean doomsday approaching. “There are two sides to every coin. There probably would be a weaker pound [if we vote out] but that’s not such a bad thing,” says Jason Hollands, managing director of Tilney Bestinvest.
“Even if we don’t get a free trade deal to lower tariffs on trade with the world, a weaker pound would offset that and make our exports attractive,” he adds.
Japan, for example, has been in negotiations over a free trade deal with the EU for decades and still doesn’t have one. But that hasn’t prevented Japanese goods from becoming ubiquitous.
UK goods aren’t the only asset that would be more attractive if sterling plumments. Bricks and mortar would be cheaper for international investors – already keen buyers of prime central London properties and buy-to-lets across the country.
There’s the potential for demand to increase if the pound is down for a long period. That’s great for developers and sellers, but won’t ease the housing crisis.
Read more: London's housing crisis is failing workers
An attraction for international buyers perhaps, but weaker sterling raises the costs of imports to the UK because it is more expensive to buy things in other currencies. It’s also worth noting that manufacturing and exports are only a small part of the UK economy.
“There are a series of off-setting impacts from weaker sterling which means overall a weaker sterling would slow growth in the UK,” says economist Simon French from Panmure Gordon.
A leave vote followed by a sharp fall in sterling could mean the Bank of England makes a cut to base interest rates, says Andrew McPhillips, chief economist at Yorkshire Building Society. It will be an attempt to stabilise the economy. “This could lead to an increase in inflation due to the depreciation of sterling,” he says.
Prices could potentially rise as imports become more expensive. “There could be price inflation in food, clothing and energy,” adds French.
“The Bank of England is likely to be willing to trade that off against trying to maintain economic growth and avoid the risk of increasing unemployment,” McPhillips says.
In the event of a Brexit, a cut in bank interest rates may not translate into lower mortgage borrowing costs. This would chiefly be due to the ensuing uncertainty and potential trouble banks and other lenders will have in securing their own funding.
“Lenders will need to ensure they remain profitable… this would most easily be achieved by increasing borrowing costs,” McPhillips adds.