EU doubts put pound's 'safe haven' status at risk, traders warn
The pound risks losing the 'safe-haven' status it has enjoyed among international investors as doubts grow over Britain's future in the European Union, one of the world's largest currency traders has warned.
Sterling has fallen more than 2pc against the dollar and 3pc against the euro already this year, marking a departure from 2012 when it was one of the most stable major currencies.
Prime Minister David Cameron is under intense pressure from Conservative MPs to renegotiate Britain's 40-year old membership of the EU, as the 17 countries that use the euro move towards closer political union.
In a major speech expected this week, Mr Cameron is expected to stress that he would prefer Britain stays in the EU but will raise the prospect of the country exiting without significant changes.
The Coalition government has been at pains to stress that political stability has been an attractive asset in the UK since the financial crisis even as the economy struggles to recover. The fear in foreign-exchange markets is that even if Britain remains in the EU, uncertainty over its role and a potential renegotiation of its membership could extend into next year.
A weakening in the pound may be welcomed by the government and the Bank of England, which are hoping that a weaker currency will help drive the country's exports this year. However, authorities will not want to see concern over the uncertainty surrounding Britain's future in EU trigger a sell-off in UK government bonds. Such a move would force up the Treasury's borrowing costs even as the recovery remains fragile.
Posted by: lotp 2013-01-21