Pound Drops Most Since 2009 as U.K. Assets Awake to Brexit Risks
The pound dropped the most since 2009, leading a decline in U.K. assets, as early results in Britain’s European Union referendum punctured confidence the “Remain” campaign was heading for victory.
Britain’s currency tumbled against all of its major counterparts, and FTSE 100 Index futures contracts slid after results from two industrial cities in northeast England showed greater support for leaving the bloc than academics had forecast.
Price swings in the U.K. currency accelerated as the first results from the referendum filtered through, with sterling trading in a range of more than 4 percent. It earlier climbed above $1.50 for the first time since December after a nationwide YouGov Plc survey conducted on the day of the vote showed a 52 percent share for the status quo, and also sank as much as 3.9 percent.
The pound has fluctuated vigorously since the start of the campaign in February, acting as a barometer for sentiment and reflecting the side of the debate in the lead. It dropped to a seven-year low that month when former London mayor Boris Johnson announced his support for Brexit. Just last week it was as low as $1.4013 when the ‘‘Leave’’ camp appeared to be ahead.
“It does look like the margin between the two sides is going to be relatively tight,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “Sterling volatility is going to remain elevated until we get a more definitive picture. There is definitely a lack of liquidity which is amplifying moves — wild swings seem probable as investors remain unsure which way this is going to go.”
Sterling fell 2.4 percent to $1.4525 as of 1:42 a.m. London time. It earlier touched $1.5018, the highest level since December. FTSE 100 Index contracts expiring in September lost 2.4 percent. The market turmoil spread beyond the U.K., with the yen, a traditional haven in times of stress, strengthening, and the Australian dollar dropping.
Results showed 61 percent voted in favor of an exit in Sunderland, while the pro-EU camp won 51 percent of the vote in Newcastle, smaller than the forecast 12 percentage-point lead. With results from just 14 of 382 areas reported, the final picture may not be clear for several hours.
The referendum has resonated across the globe with officials in finance and central bankers warning of risks should Britain vote to remove itself from the EU. Federal Reserve Chair Janet Yellen said last week that the vote was a factor considered by officials as they decided to keep U.S. interest rates unchanged this month.
Source: Bloomberg LLP