Pound under renewed pressure on growing Brexit jitters
Sterling faced a fresh blow on Tuesday, deepening its losses for July more than 4 per cent amid mounting angst that the UK will careen out of the EU with no deal.
Britain’s currency dropped 0.51 per cent against the US dollar from afternoon levels on Monday in New York to $1.2154. It has shed 4.3 per cent since the end of June, leaving it on pace for the worst month since October 2016.
The pound declined 0.54 per cent against the euro on Tuesday, and has shed 2.7 per cent over the past four trading days. Sterling also declined on Tuesday against other major currencies such as the Japanese yen.
“The spectre of Brexit casts a shadow again,” said Antje Praefcke, currencies analyst at Commerzbank. She said investors are increasingly anxious over the hard line pursued by Boris Johnson’s government over Brexit talks and his vow the pull the UK out of the EU by the end of October with or without a deal.
Seema Shah, chief strategist at Principal Global Investors, said: “Boris Johnson’s approach is pushing the UK inexorably towards a no deal Brexit. Sterling is finally making its delayed arrival at the no deal Brexit party.”
“Very few [traders] if any look willing to stand in front of this steamroller this morning,” added Stephen Innes, managing director of trading firm Vanguard Markets.
The next key level to watch for the pound is $1.2106, after which the currency will breach its lowest point versus the greenback since January 2017.
“A no-deal Brexit could see cable crashing down to $1.10,” said Robert Carnell, an economist at ING, referring to pound-dollar exchange rate.
Boris Johnson, Britain’s new prime minister, insisted an abrupt exit was “absolutely not” the government’s assumption. Speaking on a trip to Scotland, he said he still believed that no-deal Brexit was a “million to one” possibility. “Provided there is sufficient goodwill . . . that is exactly where I would put the odds.”
However, some of Mr Johnson’s most senior ministers did nothing to dispel market fears, with Michael Gove, the minister in charge of no-deal planning, saying that leaving without an agreement was now the government’s working assumption.
The government’s new Brexit “war cabinet” of senior ministers met for the first time on Monday to ramp up preparations for a no-deal exit, amid expectations that chancellor Sajid Javid would release extra funding this week.
Dominic Raab, foreign secretary, warned that the EU had been “robust and intransigent” in recent days, telling Sky, the news broadcaster, that European officials had been “pretty stubborn” throughout the Brexit negotiations.
Downing Street added to the air of pessimism by saying Mr Johnson would not meet EU leaders to discuss a revised deal unless they accepted his preconditions: namely that the withdrawal treaty be reopened and the controversial Irish backstop scrapped.
Mr Johnson’s spokeswoman said he would not sit down to be “told that the EU cannot possibly reopen the withdrawal agreement, and that is the message he has been giving to leaders when he has spoken to them on the telephone so far”.
The prime minister has yet to speak to Irish prime minister Leo Varadkar since he entered Downing Street last Wednesday, nor has he accepted invitations to meet French president Emmanuel Macron and German chancellor Angela Merkel.
Mr Johnson’s aides fear that if he carried out a tour of European capitals, the meetings would be presented in other EU capitals as him being rebuffed. His first scheduled meeting with Mr Macron and Ms Merkel is at the G7 summit in Biarritz in late August.