Pound Plunges To Lowest In More Than 30 Years As Brexit Looms

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LONDON, Jun 24 – The pound is making history after the the U.K. voted for a Brexit. Sterling slid by the most on record against the dollar, and reached its weakest level since 1985, after the U.K. voted to quit the European Union after more than four decades. U.K. stock index futures fell and bank shares tumbled. Just after 6 a.m. London time, with most votes in, the BBC said there was no way back for the pro-EU side, with voters having backed “Leave” by 52 percent to 48 percent.

“There are certain days you never forget and this will be one of them,” David Bloom, London-based head of global currency strategy at HSBC Holdings Plc. “Everyone is all over the place, it’s been a roller coaster.” The almost 10 percent plunge on Friday leaves the currency on course for its worst day on record, and compares with the 4.1 percent drop on 1992’s Black Wednesday, when the pound was forced out of Europe’s exchange-rate mechanism — the previous biggest daily drop.

Sterling slumped to its weakest level in more than two years versus the euro, and a gauge of anticipated swings versus the dollar over the next month surged to a record. Sterling fell 9.3 percent to $1.3494 as of 6:43 a.m. London time. It touched $1.3229, the lowest since 1985. The U.K. currency slid 6.5 percent to 81.54 pence per euro, set for the biggest decline on record.

Bloomberg’s British Pound Index, which tracks sterling against seven major peers, fell 8.9 percent, while FTSE 100 Index contracts expiring in September declined 8.3 percent. Standard Chartered Plc and HSBC shares fell in Asia. 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.

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

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. 

One-month implied volatility for the pound versus the dollar, a measure of price swings based on options, jumped to 32.1 percent, the most since Bloomberg started tracking the data in 1996. Friday’s price moves are in line with what economists predicted in the case of a Brexit in a Bloomberg survey earlier this month.

In the meanwhile, in that poll, most saw that the pound plunging below $1.35 the day after the vote. While a lower pound may boost exporters, it could increase prices for U.K. consumers, and complicate the Bank of England’s efforts to meet its inflation remit.

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