World Economy

Sterling Sell-Off Pauses

Sterling Sell-Off PausesSterling Sell-Off Pauses

Sterling won some respite on Friday as global stocks rose, but persistent worries about a possible British exit from the European Union checked gains to leave the currency on track for its biggest weekly loss since 2010.

Sterling rose 0.5% to $1.40, pulling away from a seven-year low of $1.38 plumbed on Wednesday but on course for a 2.7% weekly fall, Reuters reported.

The euro was down 0.6% at 78.45, 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 or quit, 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 some 5% of economic 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 of leaving the EU.

Finance Minister George Osborne also waded in, saying that the currency’s decline was a reminder that the outcome of the referendum would have economic consequences.

“Investors continue to favor 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.”