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Brexit to chip at US economy, diplomatic leverage

Britain’s exit from the European Union (EU) is expected to rattle the US economy and weaken America’s diplomatic leverage in the bloc.

The so-called Brexit has already shaken equity markets and driven up the value of the dollar, while upending the corporate strategies of American companies based in London.

The pound fell to its lowest level against the US dollar since 1985 as the global markets reacted to the EU referendum results. Following the Brexit results, the euro also sank against the dollar and the Japanese yen.

A falling pound and euro could cause the dollar to surge, further suppressing demand for US exports.

“I only see negative economic outcomes,” if UK voters decide to leave the EU, US Treasury Secretary Jacob Lew said ahead of the vote.

US officials also worry a British exit from the EU will weaken the American economy if growth in Washington’s largest trading partner, the EU, suffers from a British decision to leave.

“The UK vote to exit the European Union could have significant economic repercussions,” Janet Yellen, chairwoman of the US Federal Reserve, told Congress this week. A Brexit would “usher in a period of uncertainty” and fuel volatility in world markets. “That would negatively affect financial conditions and the US economy.”

Meanwhile, US stock futures plunged after Brexit, triggering a brief trading curb amid growing speculations that a divided Europe would put another brake on already fragile global growth. The S&P 500 Index contracts slumped 4.3 percent at 2:20 a.m. in New York.

“Significant volatility and uncertainty prolonged over time” in the UK and EU would likely fuel the turmoil in US financial markets, said Christine Lagarde, managing director of the International Monetary Fund.

At the same time, US officials worry that Britain’s EU exit will cause strategic and diplomatic rifts between Washington and many of its closest global allies.

“If they are no longer part of the European Union that means they don’t have a seat at the table when the European Union makes difficult decisions,” said Wendy Sherman, a former senior State Department official.

Back in April, US President Barack Obama said Britain would go to “the back of the queue” if it voted to leave the EU.

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