Brexit fears push pound to 7-year low

  • 25/02/2016
(Newshub.)
(Newshub.)

By Anirban Nag

The British pound has traded near US$1.39 for the first time in seven years, as concerns that Britons could leave the European Union deepened.

The latest poll showed the "in" camp is ahead in a referendum to be held in June but the gap has narrowed. Support for staying in stood at 51 percent, while 39 percent wanted a so-called "Brexit" and 10 percent were undecided, according to the ComRes poll for the Daily Mail.

Sterling fell to US$1.3925 on Wednesday with chartists now targeting the low of US$1.35 seen in 2009. The currency has come under attack since the start of the week, shedding 3 percent after several senior members of the ruling Conservative Party threw their weight behind the campaign to leave the European Union over the weekend.

The euro was 0.3 percent higher at 78.82 pence ($A1.53) although the single currency has been held back on worries that the euro zone itself could face a period of uncertainty if Britain chose to leave the Union.

"The growing anxiety over the pending EU referendum vote and the uncertain impact it may have on the UK economy have triggered an aggressive selloff in sterling," said Lukman Otunuga, analyst at FXTM.

The uncertainty has pushed back chances of an interest rate hike by the Bank of England. Instead, BoE Governor Mark Carney reminded investors that the BoE could still use rate cuts and a broadening of a bond-buying program to boost Britain's economy if needed.

HSBC, a big trader in sterling, said the currency could lose up to 20 percent of its value and UK economic growth could be up to 1.5 percentage points lower next year if Britons vote to leave the European Union in the referendum.

Those concerns saw the six-month implied sterling/dollar volatility, options that cover the June referendum, hit 13.35 percent on Wednesday as investors sought protection against further big falls in the pound. That was its highest since September 2011.

Reuters

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