Pound Shows How Brexit Concerns Are Starting to Look Overdone

A measure of risks to sterling fell Tuesday by the most since 2008, surpassing the decline in the aftermath of last year’s general election, which narrowly avoided the political turmoil of a hung parliament. And though the June 23 vote on Britain’s membership of the European Union has made the pound the developed world’s worst-performing currency in 2016, during the past week it’s been the biggest gainer.

The U.K. currency has been a barometer of sentiment throughout the referendum debate, sliding to a seven-year low versus the dollar about a week after the date of the vote was announced, and now rallying as the “remain” camp gains traction. These latest moves point to renewed optimism that a Brexit will be avoided, and suggest traders are reassessing whether they went too hard, too fast in betting against sterling.