Why Investors Are Betting Big that the British Pound Will Crash
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There's currently an enormous sum placed on the table right now by investors—and if the strategy pays off, investors will probably prefer their profits to be paid in any currency except for the pound.
According to Bloomberg, at least $15.5 billion has been placed on a bet that pays off if the pound falls in value. Essentially, if the pound exchange rate with the dollar drops below $1.3502, which is about 4% less than it is now, the investors clean up.
The force driving these wagers is a referendum on June 23 in which Brits will be deciding whether to stay in the European Union or perform what's known as a Brexit—which, contrary to popular belief isn't when you quietly stumble out of a party without saying goodbye.
Although polls betray very little about what will actually happen, investors really seem to think that Britain will bail on the EU, as a majority of the bets have come in the time since the referendum was announced in February.
The U.K. is responsible for around half of the EU's imports and exports, reports Bloomberg, and "the prospect of a 'Brexit' has seen the pound fall more than any other major currency versus the dollar this year."
If the Brexit were to happen and the pound were to drop, we could see exchange rates with the dollar at impressive lows that would make traveling to Britain—which has been very expensive for quite some time—far more affordable. The pound hasn't been below that $1.3502 marker since the mid-1980s. For reference, it's currently around $1.41.