CURRENCY MARKETS

The Day after Brexit

london stock exchange.Simon Dawson.Bloombergjpg
Investors and central banks are on edge over the United Kingdom's upcoming referendum on whether the country will stay or leave the European Union.
  • Why it matters

    Why it matters

    A Brexit would have financial repercussions far beyond the City of London.

  • Facts

    Facts

    • Goldman Sachs is forecasting an 11 percent drop in the value of the pound if Britain votes to leave the European Union. Columbia Threadneedle predicts a 12 percent drop.
    • A survey by Bank of America Merrill Lynch found deep anxiety among investors, who have stockpiled their largest cash reserves in 15 years.
    • Investors are already fleeing to the Swiss franc, which has gained three percent in value against the euro.
  • Audio

    Audio

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If Britain votes to leave the European Union on Thursday, it won’t just affect the pound and the euro. A Brexit would throw the entire foreign exchange market into a tailspin, hitting safe-haven currencies like the Swiss franc and the Japanese yen particularly hard.

Experts anticipate significant volatility. Nick Parsons, lead investment strategist at the National Australia Bank, predicts a repetition of Black Wednesday, when the British pound was forced out of the European Exchange Rate Mechanism in 1992 because it lost 4.3 percent of its value.

Sören Hettler, an analyst at DZ Bank, warned against being taken in by the relative calm before the storm.

“The rates on the foreign exchange market do not adequately reflect the risk of a British exit from the European Union,” Mr. Hettler told WirtschaftsWoche, Handelsblatt’s sister publication. As a consequence, there’s danger of considerable volatility, he said.

Goldman Sachs has forecast an 11 percent drop in the value of the pound compared to a basket of currencies from other industrial economies. Back in February, Goldman predicted a 20 percent decline. Columbia Threadneedle has forecast a 12 percent drop.

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