REUTERS
The pound sank below $1.39 for the first time since March 2009, while a gauge of anxiety in currency markets showed traders are preparing for even more extreme moves, according to Bloomberg.
Options traders are paying the most to protect against price swings in six months' time compared with historical volatility since Lehman Brothers Holdings Inc. collapsed during the 2008 credit crisis. Twenty-nine out of 34 economists in a Bloomberg survey said the pound will drop to $1.35 or below within a week if the U.K. votes to leave the European Union – levels last seen in 1985, Bloomberg reported.
"The pound's vulnerability would extend beyond the knee-jerk political risk premium reaction to a 'Brexit' vote," HSBC Holdings Plc currency strategists Dominic Bunning and David Bloom wrote in a note. "It would raise questions over the future health of U.K. export growth, not least for financial-services exports." Britain's current-account deficit means "the pound can ill afford any additional widening," they wrote.
Sterling dropped 0.9% to $1.3893 as of 11:27 London time. The three-day drop against the dollar is the most since June 2009. It weakened for a third day against the single currency, dropping 0.6% on Wednesday to 79.03 pence per euro.
HSBC said the pound could fall as much as 20% if the U.K. exits the EU, while Morgan Stanley sees a smaller drop, to $1.30 by year-end, regardless of the referendum outcome.
Sterling would move toward parity with the euro in the event on an exit from the world's-largest single market, HSBC also said.
Last week, Prime Minister David Cameron announced a June 23 date for the referendum. Then London Mayor Boris Johnson backed the campaign to leave the EU, and the pound dropped as traders became increasingly concerned about Britain's health in a post-EU world, including how it would fund a current-account deficit that's supported by foreign investment. The currency had already been declining amid waning expectations for the Bank of England to raise interest rates.