The British pound sank to a seven-year low Wednesday amid growing fears of a British exit from the European Union.
A wave of selling in London drove the sterling below $1.40 for the first time since 2007. The 0.6 percent dip to $1.3878 is the pound’s weakest performance in 16 months against the euro.
Companies and investors rushed to protect themselves against the chances of a “Brexit,” which British banking giant HSBC estimated could knock off a fifth of the pound’s value, Reuters reported.
Prime Minister David Cameron said last week the nation would hold a historic referendum on June 23 to decide whether Britain should remain in the 28-nation bloc. The announcement has driven the worst three days for the pound – the world’s fourth most traded currency – since the bottom of the financial crisis in 2009, according to Reuters.
The currency could plunge even further if Britons vote to exist the EU. Twenty-nine out of 34 economists surveyed by Bloomberg this week said the pound will drop to $1.35 or below within a week of a Brexit – levels last seen in 1985.
“The worry factor seems to be building,” Daragh Maher, New-York-based head of U.S. currency strategy at HSBC Holdings Plc, said in a Bloomberg Television interview. “We have four months to this vote and I don’t think we’re going to have any clarity particularly on the outcome. If the market gets itself even more and more wound up and worried, then sterling will remain tactically vulnerable on the downside.”
The campaign for a Brexit has gained steam in the last week, with popular London Mayor Boris Johnson publicly backing the plan. The mayor’s opinion on the referendum will have a significant influence on the British public, according to a poll published Feb. 21 in the Guardian. Thirty-two percent of voters who responded to the Ipsos Mori poll said Johnson’s stance would be an important factor in their voting decision.
Cameron has said he favors negotiation with the EU over an outright exit. Bankers have threatened to flee the U.K. if voters opt for departure. HSBC said it would move 1,000 investment banking jobs from its London headquarter to Paris. Germany’s Deutsche Bank indicated last year it would consider shifting a sizable share of its 9,000 positions out of the U.K. should the Brexit coalition win.
HSBC said Wednesday the British pound could lose up to 20 percent of its value and U.K. economic growth could be up to 1.5 percentage points lower in 2017 if the nation pulled out of the EU, Reuters reported. "A vote for Brexit would have potentially huge consequences for all asset classes," HSBC said, according to the news outlet.
Support for a Brexit has slipped since Cameron called for renegotiated EU membership. A YouGov poll for the Times released Wednesday found around 37 percent of the 3,482 adults polled online said they wanted to stay in the EU, while 38 percent said they wanted to leave and 25 percent were unsure. The percentage of people who favored a Brexit has dropped eight points from 45 percent earlier this month, the Times reported.