Uncertainty over Britain's future in the European Union sent the pound plunging today, as Prime Minister David Cameron tried to shore up support for remaining in the bloc when the UK holds a referendum in June.
The pound fell 1.7 per cent to USD 1.4166, and also sagged 0.5 per cent to 1.28 euros, as bookmakers shortened the odds on a vote to leave though betting markets still favor a "remain" victory.
Simon Smith, chief economist at FxPro, said the next four months "won't be a fun time" for the pound, which has weakened in recent months.
"It's more the uncertainty that will weigh on the currency, rather than investors taking a view on the outcome and the implications for the economy, which are hard to argue either way," he said.
Many big businesses have warned that leaving the EU with its open internal market of 500 million people would hammer the British economy. But London Mayor Boris Johnson, a high-profile supporter of an "out" vote, said fears of economic catastrophe were "wildly exaggerated."
He likened he warnings to those who had said that if Britain did not join the euro single currency, London's City financial district would suffer and "great mutant rats would gnaw the faces of the last bankers."
"It didn't turn out to be true. On the contrary, the City of London is overwhelmingly the preponderant financial center here in this part of the world, indeed it is the biggest on earth," Johnson said during a question session at City Hall.
The rhetorical stakes shot sky-high as politicians began a four-month battle to sway British voters ahead of the June 23 referendum, with the opposing sides battling over whether EU membership made Britain more or less safe from terrorist attacks.
Former Conservative leader Iain Duncan Smith said yesterday that the EU's "open border," and the inflow of millions of migrants from the Middle East and Africa, made it more likely terrorists could slip into the UK even though Britain is not part of the EU's borderless Schengen zone.
But Defense Secretary Michael Fallon argued that EU membership made the UK safer.
"It is through the EU that you exchange criminal records and passenger records and work together on counter-terrorism," Fallon told the BBC today.
"We need the collective weight of the EU when you are dealing with Russian aggression or terrorism. You need to be part of these big partnerships."
Cameron was due to make his case in the House of Commons today, arguing that a deal he struck Friday with 27 other EU leaders gives Britain "special status," exempting the UK from ever-closer political bonds with the bloc and protecting the rights of the pound against the euro single currency used by 19 EU countries.
