British pound sinks on rising 'Brexit' fears

The British pound had its worst day in years on Monday as the odds of Britain leaving the EU rose after the popular mayor of London said he would join the campaign to leave the bloc. 

The pound fell more than two per cent against the U.S. dollar, touching a seven-year low of $1.4058 US before rebounding slightly to just over $1.41 US. It was the biggest one-day loss for sterling in nearly six years against the U.S. buck.

• U.K. referendum on staying in the EU to be held June 23

The pound fell almost two per cent against Canada's currency. In Monday trading, the British pound ended the trading day at $1.9398 Cdn, down 3.73 cents from Friday, according to Bank of Canada figures. It averaged around $2.05 in both December 2015 and in January 2016.   

London Mayor Boris Johnson's announcement on Sunday that he supports "Brexit" — Britain exiting the EU bloc — was seen as a major boost to the "out" campaign.

"Boris has upset the apple cart in going against his party leader," said ETX Capital currency trader Richard Wiltshire, in London. "Everyone is now thinking it's going to be a much closer-run thing than we previously thought."

Odds still favour a vote to remain in the EU

British bookmakers now put the odds of a "leave" vote in the June 23 referendum as high as 36 per cent.

British Prime Minister David Cameron told the House of Commons on Monday that the referendum "is a straight democratic decision: staying in or leaving."

He warned fellow parliamentarians, including many doubters in his own caucus and cabinet, that leaving the EU would be "a great leap into the unknown" that could harm Britain's economy and security.

"Leaving the EU may briefly make us feel more sovereign," he said, but argued: "We're better off fighting from the inside."

With the referendum still four months off, traders say the pound could weaken further amid the uncertainty. Several banks say sterling could slide to as low as $1.30 US.