The US dollar is broadly mixed.  The main narrative of increased prospects for a Fed hike in June or July has been pushed off center stage as the market reacts to local developments as investors await from US economic data.  Ostensibly the data will determine whether the Fed raises rates in June or July. 

On the other hand, despite the Fed’s data dependency, we argue that the determining factor is the Fed’s risk assessment.  In particular, we accept at face-value the official recognition of the risks posed by the UK referendum. In the larger picture and from an economic and financial point of view, it matters not if the Fed hikes in June or July. Given the uncertainties surrounding the UK referendum, we think the Fed would prefer to wait six weeks until its next meeting than risk adding to the potential market disruption and tightening of financial conditions that could result from a UK decision to leave the EU. 

Sterling is the weakest performer among the major currencies today.  Initially, it was bid to a three-day high near $1.4725 before reversing to a five-day low.  Technically, the outside down day requires a close below the previous day’s low ( ~$1.4588).  The proximate cause is two-fold.  First, the latest ORB poll confirmed reports that contest is much tighter than some of the recent polls suggest (51% to 46% for the remain), and a London bookmaker indicated that the new money placing wagers favor the “leave camp.”  This can be seen in the options market, where one-month volatility has jumped to 17.25%  from 16.6% before the weekend and 11.1% a week ago.  The premium for sterling puts over calls widened to 5.7% yesterday, and indicative prices suggest it remains near there today.  

There is also some concerns that regardless of the outcome of the referendum, the heated battle will generate a challenge to Prime Minister Cameron.  And Chancellor of the Exchequer Osborne has not yet be rehabilitated after the poorly received budget, and in any event is seen as too close to Cameron to be an alternative.