How Far Will the British Pound Fall?

There is a distinct possibility that Great Britain will vote against EU membership in the upcoming June referendum. Forex traders are already speculating on how badly a so-called “Brexit” would hurt the pound sterling. How far will the British pound fall? Bloomberg Business writes that economists see 1985 levels for the pound if the Britain leaves the EU, the so-called “Brexit.”

A British exit from the European Union would be so devastating for the pound that 29 out of 34 economists in a Bloomberg survey see it sinking to $1.35 or below within a week of a vote to leave — levels last seen in 1985.

Twenty-three of the economists say sterling wouldn’t recover from that rate within three months of the June 23 referendum. Seven see the U.K. currency falling below $1.20 immediately after a “Brexit” vote. And just one sees it above $1.40. That’s stronger than its low on Wednesday, when the pound fell through $1.39 for the first time since 2009.

The BOE would respond to a vote to leave the EU by cutting interest rates from a record-low 0.5 percent, said Enrique Diaz-Alvarez, chief risk officer at Ebury Partners, a London-based broker which topped Bloomberg’s rankings for forecasting euro-sterling in the second quarter of 2015. This could happen as soon as the day after the vote, he said.

British citizens may have their own reasons for wanting to the leave the European Union but if they vote to leave there will be a price to pay starting with a falling pound sterling and following up with broad based economic consequences.

How Britain’s Economy Do Outside of the EU?

The Financial Times looks at three possible economic consequences of Brexit. The three possibilities are a successful transition with a booming economy, a shaky transition with an economic slide and a disastrous transition with a recession, loss of confidence in the British economy and loss of trade partners.

Here, the FT looks at the case for three very different economic futures for a UK outside the EU: a Booming Britain, a Troubled Transition and a Disastrous Decision. The first envisages a vibrant economy unconstrained by Brussels red tape; the second foreshadows a period of turmoil and financial instability before the UK finds its way; the third portends an economy that suffers long-term damage.

The free flow of goods and people is an economic stimulus that will be lost if the UK leaves the EU. The will be lost in a Brexit. However, leaving the EU will remove what some consider as an excessive regulatory burden. Britain will regain control of her borders but find trade more difficult. And international businesses such as British banks are already talking about setting up shot in Paris and Berlin in order to continue to do business on the continent.

Trading the GBP

The pound has already fallen a bit on the news of a referendum on Britain staying in the EU. And the fall of the pound extends across various trading pairs. According to in the UK, EU referendum uncertainties weigh heavily on the pound.

The dramatic falls experienced by the Pound in the last four days has seen the Pound lose over six cents in value against the Aussie (Australian Dollar) to trade at its lowest level since May 2015.

The catalyst has been the decision by British Prime Minister David Cameron to set the date of the ‘in / out ‘ referendum of the UK’s membership of the European Union (EU) for 23 June.

Cameron confirmed the date in an address to the British Parliament noting “The deal we have negotiated with the EU’s 27 other states would give Britain a “special status” within the Union and ensures it never becomes part of a European super-state.”

Further pressure was heaped on both Cameron and the Pound after London Mayor Boris Johnson backed the ‘leave EU’ campaign raising fears about a British Exit or ‘Brexit’ from the EU.

If British citizens accept that their prime minister has negotiated a deal that will protect them from dominance by an EU super state the pound may recover. Otherwise how fall will the British pound fall? That will play out after the referendum in June.