GBP Drops as London Mayor Backs Brexit

A British vote on whether to quit the European Union is still months away but the pound is already taking a beating.

Investors are worried about the possible economic fallout of a decision to leave, the odds of which rose after the high profile mayor of London said he would campaign for the so-called Brexit.

The pound fell against all major currencies on Monday morning. It was down 2% against the dollar to $1.41, the lowest since early 2009. The pound also dropped 1.3% lower against the euro.

“We are likely to see further sterling weakness ahead of the vote itself, as the debate rages and uncertainty undermines confidence,” said Kit Juckes, a strategist at Societe Generale (SCGLF). His bank rates the risk of Brexit at 45%.

Sunday’s news that London mayor Boris Johnson was joining the Brexit campaign prompted major British betting firm Ladbrokes (LDBKY) to cut the odds on the U.K. leaving the bloc from 15/8 to 2/1.

Britain will vote on June 23 whether to stay in the union. Opinion polls show Europe’s second biggest economy is bitterly divided over the issue, with large numbers of voters still undecided.

“From a market perspective, the most likely barometer of uncertainty is the currency, and… we believe there is significant further downside potential for sterling in the build up to the vote,” wrote UBS economist David Tinsley in a note.

via CNN

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza