There is less than a month until the UK’s Brexit referendum, which is likely to be this summer’s biggest international political event. All eyes are on the polls as the world tries to decipher what will happen.

But unfortunately, poll results have been inconsistent, with differing results most pronounced when comparing online and telephone polling results. 

Online polls occur more frequently and are self-selecting, implying a higher willingness to answer honestly. However, self-selection doesn’t guarantee a representative cross-section of the relevant population. Also, online polls tend to return a higher level of “undecideds.”

This matters because the foreign exchange market appears to be highly sensitive to swings in opinion polls.

Interestingly, the closer you get to an actual event the less accurate polls may become. In fact, history shows that the disparity in polling methods tends to disappear as an event draws near due to an industry phenomenon known as “herding.”   

Statistical analysis seems to infer that polling firms seek safety in numbers, at the possible expense of accuracy, as the commercial and reputational risk of being an outlier is so high.

Here’s the irony: Brexit polls are not helpful now because they are returning different results. But they may not be helpful closer to June 23rd either, because they all say the same thing.

Hedge funds and investment banks are positioning themselves to take advantage of the referendum outcome’s uncertainty via private exit polls. By gathering legal insider information, these major players hope to profit by placing major bets on the pound if their private polls indicate a result different than what the market expects.

Our View: Markets are skeptical of the credibility of opinion polls. That means both sides will be making big marketing pushes, signaling a volatile summer for the British pound as the currency continues to react to changing poll results. On the day of the referendum, we expect volatility to spike, especially if those funds make big bets based on their private polls.

What is the Brexit? Read our Q&A to learn more.

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