FX Roundup: Pound takes a tumble on 'Brexit' concerns

The pound sterling fell to its lowest level versus the dollar since 2009, as Brexit concerns came to the fore on Monday with a referendum on the country’s membership of the European Union set for 23 June.

Prime Minister David Cameron confirmed the date in an address to 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.”

However, in a blow to his leadership, Cameron’s Conservative Party colleague and London Mayor Boris Johnson backed the ‘leave EU’ campaign, raising fears about a British Exit or ‘Brexit’ from the EU, with opinion polls suggesting the country remains divided about whether or not to stay in the EU.

At 1623 GMT, the pound was down 1.94% versus the dollar to $1.4127, having fallen at one point to $1.41020; the currency’s biggest intraday drop since March 2009.

Melanie Debono, analyst at Capital Economics, said, “Bookmakers’ odds still suggest that the UK electorate will vote to remain inside the EU in four months’ time and those odds do not appear to have lengthened much since the conclusion of the EU Summit on Friday.

“But the fact that such a high-profile member of the ruling Conservative Party has chosen not to back the Prime Minister’s recommendation (that the UK stay in a reformed EU) has added to the uncertainty markets fear.”

Capital Economics’ forecast remains that the pound will fall further against the dollar this year, to $1.30 from around $1.41 now.

“Granted, the exchange rate has already fallen a long way in 2016, despite some stability in the gap between UK and US interest rate expectations. Even if a lower level of sterling is justified by economic fundamentals, currencies can deviate from their “fair value” by large amounts and for long periods. So sterling’s apparent overvaluation is no guarantee that it will continue to fall,” Debono concluded.

Elsewhere, the dollar headed higher against major forex crosses. The euro fell 0.94% exchanging versus the greenback at $1.1025. The yen changed hands to a dollar at JPY113.04, with the US currency up 0.36%.

However, commodity linked currencies saw a better start to the trading week. The greenback fell 0.56% against the Canadian dollar changing hands at CAD$1.3689. A plethora of other commodities currencies headed higher along with the loonie, particularly in Latin America, with the dollar dropping 0.90%, 1.37% and 1.80% against the Mexican, Colombian pesos and the Brazilian Real respectively.

Finally, the Australian dollar rose 1.19% against the greenback exchanging at US$0.7233, while the New Zealand dollar also rose 1.25% on inflation expectations exchanging at US$0.6715.