GBP/USD Plunges to 7-Year Low as “Brexit” Gains Support

The GBP/USD posted its biggest loss since October 2009 on Monday after London Mayor Boris Johnson decided to increase his campaign for Britain to exit the European Union. Johnson’s decision to back a “Brexit” was a serious blow to British Prime Minster David Cameron, who over the weekend announced a June 23 referendum which would decide if the U.K. remains a member of the EU.

Late last week, Cameron negotiated a deal with the EU that was supposed to offer Britain a new special status in Europe. Cameron has secured the backing of the majority of his cabinet after striking a reform deal at a European Union summit on February 19 to give Britain “special status” in the 28-nation bloc. But following the announcement, six ministers including Justice Secretary Michael Gove said they would support a vote for Britain to leave the European Union.

The referendum on whether or not to leave the EU will define the U.K.’s future for a generation according to some commentators. The prime minister has recognized the decision on EU membership goes to the “heart of what country we want to be”.

Moody’s credit rating agency even chimed in about the situation. It said that the “economic costs” of a decision to leave the EU would “outweigh the economic benefits”, and that it would consider “reflecting those threats to the U.K.’s credit standing by assigning a negative outlook to the sovereign Aa1 rating following a vote to exit.” Lowering the credit rating would not be good for the British Pound.

Kathrin Muehlbronner, of Moody’s sovereign risk group added, “Unless the U.K. managed to negotiate a new trade arrangement with the EU that preserves at least some of the trade benefits of EU membership, the U.K.’s exports would suffer. It would likely lead to a prolonged period of uncertainty, which would negatively affect investment.”

Based on the current price action, the GBP/USD is likely to finish today’s session at a seven-year low.

A 200+ point gain by the Dow Jones Industrial Average helped drive the EUR/USD nearly 1.00% lower on Monday. The “risk-on” mood across the financial markets weighed on the Euro because of its negative correlation with risk appetite.

In other news, Euro Zone private business growth increased at its weakest pace for over a year in February, much worse than expected, after activity slowed in Germany and contracted in France, according to surveys released on Monday. The surveys, which also provided further evidence of price cutting, is likely to solidify expectations of more monetary policy easing from the European Central Bank in March.

The stronger U.S. Dollar and rising equity markets helped drive April Comex Gold prices lower on Monday. The market is down over $20.00, but still above the psychological $1200.00 level. Buyers are still coming in to support the market and slow down the break on speculation the Fed will continue to refrain from additional interest rates hikes.

According to the Commodity Futures Trading Commission, speculators increased their bullish bets in COMEX gold futures and options to their highest in nearly four months in the week to Feb. 16. Increases in ETF holdings also continued to support prices.

April Crude Oil prices rose as much as 7 percent on Monday after a report said it expected U.S. shale production to fall this year and next, potentially easing a glut that has driven prices to their lowest in more than a decade.

The International Energy Agency (IEA) said in its medium-term outlook on Monday that U.S. shale oil production was expected to fall by 600,000 barrels per day (bpd) this year and another 200,000 bpd in 2017.