Pound heading for biggest one-day fall since 2009 on Brexit fears
22 February 2016 23:46

Pound heading for biggest one-day fall since 2009 on Brexit fears

LONDON. KAZINFORM The pound is heading for its biggest drop in nearly seven years against the dollar amid uncertainty about a possible British exit from the EU.

At one stage it was down 2.1% at $1.41020, the biggest one-day drop since March 2009.

The move follows London Mayor Boris Johnson joining the campaign to leave the EU after Prime Minister David Cameron set a June referendum date.

The steep fall adds to losses made by the pound over recent months.


So far this year, fears of a British exit from the EU - dubbed 'Brexit' - have already pushed the pound down by more than 4% against the US dollar.

Analysts said that was likely to continue to direct sentiment until the vote.

"Today's weakness appears to reflect an increased probability of Brexit after political reaction to the new deal on EU membership was more split than the PM would have hoped," said Sam Hill, senior UK economist at RBC Capital Markets.

If the pound finishes at its lows for the day, it will be the biggest one-day loss since the Bank of England cut interest rates to 0.5% in 2009 and started its economic stimulus programme known as quantitative easing.

Against the euro, the pound is down 1.2% to €1.2774. Against the yen, the pound has slumped to 160.075 yen, its lowest since late 2013.

"I don't think investors are saying Brexit is good or bad, but it's the uncertainty," said Simon Smith, chief economist at FxPro.

The pound has already dropped more than 17% against the dollar in the last 18 months, partly due to the outlook for UK interest rates.

Whereas the US raised rates last year, Bank of England governor Mark Carney has ruled out such a rise for now.

As a result sterling is seen as less attractive for investors, continuing to fall from the $1.7165 peak seen on 1 July, 2014.

A weak pound helps exporters by making British goods cheaper on international markets.

It also makes the UK a better value destination for tourists.

However, a weaker pound makes imports more expensive, possibly hurting consumers and businesses that rely on foreign goods.

'Down the lift shaft'

David Cameron announced on Saturday that the EU referendum would be held on 23 June after he came back from Brussels with a renegotiation of Britain's EU membership.

According to Mr Smith, the pound went "up the escalators" on Friday and "down the lift-shaft at the start of the Asia session" after the weekend's events.

The intervention by Boris Johnson is being seen as a significant blow to Mr Cameron's campaign to remain in the EU.

Several other senior Conservatives - including Justice Secretary Michael Gove - have already said they would join the Out campaign.

Source: BBC News