Latest polls show rising odds that the UK will vote to leave the EU next Thursday. Despite the market having begun to increasingly price in this risk scenario in the last few days, financial markets will be shaken up significantly if a “Yes” vote on the Brexit is established as the outcome of the referendum.

Massive depreciation in the pound is likely amid low liquidity. Strong exchange rate fluctuations are likely in other currencies too. Increased demand is expected for safe havens such as the Swiss franc (which has already gained ground with EUR-CHF falling from 1.11 to 1.08-ish), the Japanese yen and also the US dollar should appreciate. The euro, too, would probably see gains versus the pound.

Such a crisis could prompt the BoE and ECB to intervene together in the FX market in order to curb excessive fluctuations. Through joint FX market interventions, the central banks would send out the signal that they are prepared to maintain financial market stability at any time. The Fed which put up a strong opposition to the Japan against weakening of yen through interventions might also join in this time.

The action would be in violation of the G7 London Accord, whose “we will not target exchange rates” rules out foreign exchange market interventions. But we see little alternatives as the zero interest rate policy prevailing everywhere constrains the central banks’ scope for action considerably.