Sterling fell beyond its post-Brexit-vote low
Fears of the consequences of a Hard Brexit have sent the pound tumbling to a new 31-year low against the dollar, reports The Independent.
Speaking at the Conservative Party’s annual conference in Birmingham on Sunday, Theresa May has ended weeks of speculation and revealed that she will launch formal Brexit talks with EU leaders before the end of March 2017. The timing means the UK looks set to leave the EU by summer 2019.
Sterling has fallen to $1.2764 in early trading on Tuesday, extending its losses from the previous day.
That is its lowest level since June 1985, and almost 15 per cent weaker than before the EU referendum on June 23.
It also hit a three-year low of 87.51 pence per euro, down 0.2 percent on the day.
Despite the drop, the FTSE 100 share index has risen above 7,000 for the first time since May 2015.
Kit Juckes of French bank Société Générale blamed the Conservative Party for sending pound down to levels last seen in 1985.
She said: “Confirmation that the UK Government plans to trigger article 50 by the end of Q1 2017 hit sterling harder than I expected yesterday, which is saying something.
“There will be fiscal slippage as the Chancellor won’t try to hit previous deficit reduction targets, but a significant easing is not on the cards. Nor is the government showing any signs of shifting a position where control on immigration is the hardest of lines in negotiations to leave the EU, and won’t be sacrificed or watered down in order to keep access to the single market, particularly for financial services. There’s nothing there to soften the outlook for sterling, at all.”
Experts have warned that London’s position as a financial hub will be dealt a severe blow if the UK left the single market. However, that access is contingent on countries agreeing to let European Union citizens live and work anywhere in the bloc.
But speaking to delegates, Theresa May claimed people who talk about a “trade-off” between controlling immigration and trading with Europe are looking at things the “wrong way”. Her strong stance towards the City adding to investors concerns about a so-called hard Brexit.
“I want it [the deal] to give British companies the maximum freedom to trade with and operate in the Single Market – and let European businesses do the same here.
Conner Campbell of SpreadEx said the prospect of a “hard Brexit” is hurting the pound: “It seems that it is going to be hard to provide a tourniquet for sterling’s recent wounds given the solidity of the newly announced Brexit timeline (with March set to go down in the history books as when Article 50 was triggered), and the firmness with which May stated her intention to chase border control even if it means relinquishing Britain’s position in the single market.”
Ana Thaker, market economist at PhillipCapital UK, said the pound could slump as low as $1.25, or worse, as the process of leaving with the EU gets underway.
She said: “There is great uncertainty regarding how the Brexit negotiations will take shape and this could see a renewed bout of volatility in the currency.
“The Bank of England could also seek to stabilise markets if volatility continues but it remains to be seen how far Sterling could drop with the $1.25 being the next target level; whilst it could dip lower than this, there is likely to have to be significant developments for the pair to reach the $1.20 level.”
