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Pound sterling sinks as Boris Johnson supports Brexit

As politicking on Britain’s membership of the 28-member European Union hots up, the pound sterling saw its biggest drop in more than a year against the dollar.

world Updated: Feb 23, 2016 12:12 IST
Prasun Sonwalkar
The pound sterling saw its biggest drop in more than a year against the dollar, hours after the popular London mayor Boris Johnson (BoJo) lent his considerable weight to Brexit.
The pound sterling saw its biggest drop in more than a year against the dollar, hours after the popular London mayor Boris Johnson (BoJo) lent his considerable weight to Brexit.(REUTERS)

As politicking on Britain’s membership of the 28-member European Union hots up, the pound sterling saw its biggest drop in more than a year against the dollar, hours after the popular London mayor Boris Johnson (BoJo) lent his considerable weight to Brexit — Britain departing from the EU.

The pound fell 1.65% to $1.4167 — the biggest one-day drop since January 2, 2015. Against the euro, it hit a 7-year low of $1.4057. Fears of a Brexit have already pushed the pound down by 3.9% against the US dollar this year, and analysts are expecting it to hit $1.30.

Britain will hold a referendum on its membership of the EU on June 23. A vote to leave the EU in will threaten UK’s strong credit score, potentially pushing up the cost of government borrowing, Moody’s warned on Monday.

All this has implications not only for London as a major capital of global finance, trade and business, but also for over 800 Indian companies that use Britain as a gateway to Europe.

Industry body FICCI has said some Britain-based Indian companies, closely engaged with Europe, may relocate in a Brexit scenario.

During Prime Minister Narendra Modi’s visit to London last November, he highlighted the benefits to India of Britain’s presence in the EU. “As far as India is concerned, if there is an entry point for us to the European Union that is the UK, that is Great Britain,” he had said.

British Prime Minister David Cameron on Friday sealed a deal for “special status” in the EU, paving the way for him to campaign to stay in the bloc in the referendum.

Sam Hill of RBC Capital Markets told BBC: “With political reaction to Friday’s deal looking more mixed than the prime minister would have hoped for, in the short-term it is likely that the exchange rate will be sensitive to news, which is seen to increase the probability of Brexit.”