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The pound posted its worst week in more than seven years as anxiety the United Kingdom will leave the European Union pushed the currency to it lowest level since 2009.
Sterling tumbled 3.7 percent against the dollar since last Friday, its biggest loss since January 2009, when the U.K. was in recession and the Bank of England was considering introducing its quantitative-easing plan.
The U.K. would face a "profound economic shock" if it voted to leave the world's largest single market in the June 23 referendum, Chancellor of the Exchequer George Osborne told BBC Television on Friday. The finance chief backs staying part of the EU alongside fellow Conservative Prime Minister David Cameron.
"Potentially we have four months of political uncertainty which is detrimental to the currency," said Jane Foley, a senior currency strategist at Rabobank International in London. "There's a perception gaining ground that sterling has a previous history of falling hard on significant momentous political events, so it remains very vulnerable."
While the issue is hurting everything from consumer confidence to the housing market, a "Brexit" is by no means assured. A study published this week showed most voters are skeptical about the advantages of the bloc, but reluctant to leave.
The pound fell 0.7 percent Friday to $1.3868 as of 5:30 p.m. London time, having dropped to $1.3854, the lowest since March 2009. It gained 0.2 percent to 78.78 pence per euro, a day after sliding to 79.29, the weakest level since December 2014.
Options markets signal that traders are positioning for a further drop. The premium for contracts protecting against a decline in the pound versus the dollar, compared with those insuring against a rally, widened to 3.8 percentage points on Thursday, the most since May 2010, according to six-month risk-reversals. The rate was 3.7 percentage points on Friday.
"There's a point where you have to decipher whether market pricing of a 'Brexit' has gone too far or not," Nomura International currency strategists Jordan Rochester and Yujiro Goto wrote in a note. "With FX option pricing implying high probabilities of a further 10 to 15 percent fall in pound-dollar, it feels like in the short term we've perhaps reached a peak of 'Brexit Pessimism.'"
A level of $1.39 may come to be seen as having been "a good long-term buying opportunity for a country that, in a high likelihood, will vote to stay in the EU," the Nomura analysts wrote.
Sterling suffered weekly losses against all but one of 31 major world currencies tracked by Bloomberg. The declines haven't gone unnoticed by supporters of remaining in the EU, with one group citing in its campaign material the Goldman Sachs warning that sterling may fall 20 percent versus the dollar if Britain quits.
"People postponing investment decisions or consumer spending — that's going to be the real risk as we run into June 23," Jeremy Stretch, the London-based head of foreign-exchange strategy at Canadian Imperial Bank of Commerce, said in a Bloomberg Television interview with Manus Cranny.
"The U.K. has a large current-account shortfall that relies on foreign investment inflows. If those inflows are not forthcoming then inevitably that does suggest that sterling will continue to remain under pressure," he said, warning about a "period of instability" in the run-up to the vote.