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Sterling
hit a seven-year low against the dollar on Friday, dogged by persistent worries
about a possible British exit from the European Union which left the currency
on track for its biggest weekly loss since 2009.
Sterling
fell 0.65 percent to $1.3867, on course for a 3.7 percent weekly fall. It lost
ground in afternoon trade in London after data from the United States showed
the economy grew at a much faster pace than earlier estimated in the fourth
quarter. The euro was down 0.15 percent at 78.65, having hit a 14-month high of
79.28 pence on Thursday. The single currency came under pressure as rising
stock markets made investors less inclined to pile into safe-haven and
low-yielding currencies, including the yen and the euro.
British
voters will decide on June 23 whether to stay in the EU, and sterling has been
hit by worries that a "Brexit" would threaten the huge foreign
investment flows the country needs to balance its current account deficit, one
of the biggest in the developed world at around 4 percent of output. Selling
accelerated this week as companies and investors rushed to protect themselves
against that risk. Some sellers are targeting $1.35 and below, levels last seen
when the pound sank towards parity with the dollar in the mid-1980s.
The drop
has been so dramatic that it prompted a rare comment on economic matters from
Foreign Secretary Philip Hammond, a pro-European, who said it offered a
"foretaste" of the impact leaving the EU. Chancellor George Osborne
said the currency's decline was a reminder that the outcome of the referendum
would have economic consequences.
"Investors
continue to favour selling sterling rallies," said Josh O'Byrne, currency
strategist at Citi. "Though the scale of the move looks exaggerated, there
seems no obvious trigger for recovery." The pound has also been undermined
by expectations that an exit would push back the horizon for a Bank of England
interest rate rise. HSBC, Britain's biggest bank, has said the currency could
lose up to 20 percent of its value and growth could be up to 1.5 percentage
points lower next year if Britain voted to leave.
Most
polls have shown the "In" camp with the upper hand, but the lead is
being chipped away by "Out" proponents. Bookmakers see around a
one-in-three chance of an exit. "The next round of opinion polls regarding
the UK referendum is likely to set the pace for next week's trading,"
Rabobank analysts said in a note. "That said, while sterling is clearly
still very vulnerable, a more pragmatic tone already appears to be tentatively
emerging in response to the combined signals from opinion polls and
bookies."
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