Brexit: Just How Bad Would It Be For Sterling? – CIBC

As we explained, Remain has regained momentum  around the murder of Jo Cox and the pound is soaring. But if the referendum’s verdict is Leave, how low will the pound go? Here is the view from CIBC:

Here is their view, courtesy of eFXnews:

The Brexit vote is almost upon us. While our base case is that the UK stays in the EU, polls have been getting closer and betting odds of “Brexit” put the probability at around 40%.  A vote to stay would clearly see a rebound in sterling.

A vote to leave would likely see a further depreciation. But how much?  A lot of analysis has focused on the early 1990’s periodwhen the UK was forced to withdraw from the Exchange Rate Mechanism. But while it’s true that the UK’s current account position is just as bad as that period, making sterling susceptible to capital flight,  there are key differences.

In the early 90’s sterling was being propped up at unsustainably strong levels, showing a 20% overvaluation on the OECD’s fair value measure. That sort of overvaluation is not present this time.  A vote to leave the EU may not be the catastrophic event for sterling that many believe.

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