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Pound plunges to lowest in over 30 years on Brexit shock

The UK currency slid by the most on record to its weakest level since 1985 as results from Britain's European Union referendum showed the "Leave" campaign ahead.

British bank notes. AFP file photo

British bank notes. AFP file photo

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LONDON – The pound is making history as the chances of a Brexit grow.

The UK currency slid by the most on record to its weakest level since 1985 as results from Britain's European Union referendum showed the "Leave" campaign ahead by more than 300,000 votes. Volatility accelerated as the results from the referendum filtered through, with sterling trading in a range of more than 15 US cents as an index of betting odds compiled by Oddschecker put the vote to exit the EU at 93 per cent, from 23 per cent on Thursday (June 23).

The 8.5 per cent plunge on Friday leaves the currency on course for its worst day on record, and compares with the 4.1 per cent drop on 1992's Black Wednesday, when the pound was forced out of Europe's exchange-rate mechanism — the previous biggest daily drop. The pound's biggest-ever intraday decline has already been surpassed — with a 9.5 per cent drop on Friday beating a 5.9 per cent decline on Oct. 24, 2008 — when stock markets crashed around the world during the Great Financial Crisis.

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.

The turnaround since polls have closed has been even more dramatic. The currency earlier climbed above US$1.50 for the first time since December after a nationwide YouGov survey conducted on the day of the vote showed a 52 per cent share for the status quo.

"It's very hard to get a turnaround because the way to go is not so far anymore," said Mr Ulrich Leuchtmann, Frankfurt-based head of currency strategy at Commerzbank AG. "What we are seeing is the pound suffering a lot, and I think there's even more to come if we get certainty about this result."

Sterling fell 8.5 per cent to US$1.3616 as of 4:11am London time. It earlier touched US$1.3467, the lowest since 1985. Bloomberg's British Pound Index, which tracks sterling against seven major peers, fell 8.4 per cent, while FTSE 100 Index contracts expiring in September lost 7.6 per cent.

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 US interest rates unchanged this month.

The price moves are in line with what economists predicted in the case of a Brexit in a Bloomberg survey earlier this month. In that survey, most saw the pound plunging below US$1.35 the day after the vote. While a lower pound may boost exporters, it could increase prices for UK consumers, and complicate the Bank of England's efforts to meet its inflation remit. BLOOMBERG

 

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