Sterling slumps to new low as fears grow of no Brexit deal

Mae Love
August 12, 2018

The pound slipped to the lowest level against the euro in nearly nine months amid growing concern that the United Kingdom could end up leaving the European Union with no agreement for future economic ties.

The pound fell on Monday after minister for global trade Liam Fox said there was a 60 per cent chance the United Kingdom would leave the EU without a deal, putting the blame on "intransigence" from the European Commission. Three-month sterling volatility rose to its highest since March.

Last week Bank of England governor Mark Carney warned that the risk of the United Kingdom leaving the European Union without a deal was "uncomfortably high", something he described as a "highly undesirable" scenario.

Christophe Barraud, an economist at Paris-based brokerage Market Securities, said: "A lot of companies can't wait for the negotiations outcome in October, so of course are trying to hedge against a drop in the pound".

The pound also fell below US$1.29 for the first time since August 31 2017.

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In his accompanying note, Mr Patel explained that trading was light and in the last nine years, sterling has fallen more than 0.5% on seven occasions.

"Some are thinking in the market that the Bank of England raised rates in order to give them ammunition to cut them in the face of a no-deal", said Neil Jones, a foreign exchange expert at Mizuho Bank. "The next move [by the central bank] could be a cut rather than another hike".

In the six months after the Brexit vote for instance, the FTSE 100 .FTSE - whose predominantly dollar-earning multinational members see their profits flattered by sterling weakness - rebounded 22 percent as the pound tanked 18 percent to the dollar GBP=D3.

He believes that a no-deal Brexit is now more likely than an agreed withdrawal, putting the odds at "60-40".

Nomura strategist Jordan Rochester added: "We remain bearish on the pound in the short term until the Brexit mess is out the way..." The pound has lost more than 10 per cent since April and is down nearly 15 per cent since the Brexit vote in June 2016.

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