Brexit: the pound is plunging on fears of a British exit from the EU

If the UK votes to leave the European Union, it’s expected to cause economic turmoil that should reduce the value of the British pound. So the pound rises when the market thinks a Brexit (British exit) is less likely, and it falls if it thinks a Brexit is becoming more likely.

During the day on Thursday — before any votes were counted — the value of the pound reached $1.50 (that is, 1 British pound equaled $1.50 US), the highest level in weeks, as conventional wisdom at that point held that “Remain” would win a decisive victory of around 54 percent.

But then the first vote results started coming in, and the pound plunged:

The pound has fallen to $1.35, a 10 percent drop and the lowest value of the pound since 1985.

In the last few days, betting markets were pretty confident that British voters would reject Brexit — a British exit from the EU. Before the polls closed, they showed the odds of Britain leaving the UK around just 20 percent.

But in the last few hours, as voting results have started to trickle in, the numbers have changed dramatically. As I write this, prediction markets are now showing a 98 percent chance of “Leave” winning. Votes are still being counted, so it’s possible the situation will change. But it’s looking increasingly likely that the UK will leave the European Union.

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