The pound will have to tackle “serious challenges” if Britain decides to leave the European Union when the country votes in the EU referendum on June 23, 2016.
In a note sent to Business Insider, foreign exchange firm Caxton FX has reiterated its concerns about Brexit, saying that if Britain votes leave and becomes a “rogue nation” it will sent investors scrambling to move money from the UK, cause huge amounts of uncertainty in the markets, and weaken sterling significantly.
Here’s what Caxton analyst Nicholas Laser-Ebisch has to say (emphasis ours):
If the UK becomes a rogue nation and is all of a sudden one of the only large western European countries to not be a member of the EU, then this will be seen as political instability and will likely spook investors. An exit from the EU represents discontent among the citizens of the country, which is a sign that there is internal turmoil in the UK.
If Britain leaves the EU, it is likely that the pound will weaken significantly directly after. An “out” vote will mean that it is likely confirmed that the UK will begin the process of exiting from the EU and investors (both foreign and domestic) will quickly start liquidating their UK assets and move them into euros, US dollars, or other currencies.
Caxton’s concern about the state of the pound comes the day after the International Monetary Fund said that Brexit could cause “severe regional and global damage” and downgraded the UK’s growth forecast.
The warning is also one that it has made before. In early March, the firm argued that Brexit could spark a “currency crisis” with Laser-Ebisch saying that “investors would leave the UK investment market faster than a jack rabbit on a hot greasy griddle in the middle of August” if Britain votes for a Brexit.
Worries about Brexit have already taken a huge toll on the pound.
The pound crashed to its lowest level against the dollar, its key cross rate, since 2009 in late February, falling more than 2% in one day at one point, and dropping as low as $1.3844 on the final day of the month. It has recovered since then, and is at $1.4234 as of 4.10 p.m. BST (11.10 a.m ET) on Wednesday. Here’s how the pound’s fall looks since late 2015: