The British pound is getting cheaper in anticipation of the June referendum / E. Razumny / Vedomosti

On Wednesday, the pound fell to $1.3879, the lowest since March 2009 and the lowest level since the mid-1980s. The pound also fell to the euro yesterday, to 79.08 pence per euro, the lowest since December 2014. The market is thus preparing for the referendum (to be held on June 23), which will decide on the UK's possible exit from the EU. Prime Minister David Cameron is against leaving the EU, while London Mayor Boris Johnson supports it. According to YouGov, 55% of Londoners would like the country to remain in the EU, but there are fewer supporters of the EU in other regions.

“$1.40/pound was an important psychological level and now it’s gone,” said HSBC currency strategist Darach Maher. “There’s growing anxiety, with the referendum still four months away, but I don’t think there’s much clarity on the outcome and if the market gets more jittery and nervous, then there could be further weakness in the pound” (quoted by Bloomberg). HSBC estimates that the pound could fall another 20% against the dollar if the UK decides to leave the EU and reach parity with the euro.

“A Brexit vote would be a big hit to the pound,” says ABN Amro analyst Nick Kounis. He predicts $1.20 a week after the vote. “The fallout from such a vote would impact UK growth, rates and also capital inflows,” says Kounis. “It’s hard to say how much the pound would fall if there was a vote to leave the EU,” says Rabobank strategist Jane Foley. “The market is looking at really big numbers. Maybe $1.20?” (quotes from Bloomberg and WSJ).

Of the 34 economists surveyed by Bloomberg, 29 think the pound will fall to its 1985 level of $1.35 in the week following the Brexit vote. Twenty-three economists expect it to take three months after the vote before the pound starts to appreciate again. Seven think it will fall to $1.20, while only one sees $1.40.

A weaker pound could boost inflation, which would be a positive in the short term. But analysts say inflation is unlikely to rise enough for the Bank of England to raise rates. The Bank of England is not yet able to say which outcome it thinks is more likely, said Governor Mark Carney. “The Bank of England has not yet expressed concern about the fall in the pound,” said Daniel Lowney, a portfolio manager at AllianceBernstein, “which could be a catalyst for further weakness,” according to the WSJ.

Central banks have played a huge role in the currency market in the last few years and if the UK leaves the EU, the Bank of England's reaction will be immediate, says Enrique Diaz-Alvarez, chief risk officer at Ebury Partners: "Rates will be cut to zero with no hope of an increase in the foreseeable future" (quoted by Bloomberg).

The pound could fall by 15-20%