Sterling was under pressure on Tuesday, a day after heavy selling sparked by deepening market concern that the UK will drop out of the EU without a deal.
Britain’s currency fell 0.36 per cent to $1.2172. It has shed 4 per cent since the end of June, leaving it on track for its worst month since October 2016. The pound declined by a similar margin against the euro on Tuesday and has fallen 2.5 per cent over the past four trading days. It also fell against other major currencies on Tuesday, such as the Japanese yen.
Monday was a “huge day” of selling in the pound against the US dollar, said Robert Turner, a quant trader at RBC in London. Mr Turner said flows out of sterling were the highest since December 11 last year, “the height of the concern over an imminent no-deal exit”.
Traders expect more volatility in sterling, pushing the price up to hedge against large swings. Implied volatility over a three-month period has risen in July by the widest margin since the financial crisis in 2008, according to Bloomberg data that track activity in the options market.
“The spectre of Brexit casts a shadow again,” said Antje Praefcke, currencies analyst at Commerzbank. She said investors were increasingly anxious over the hard line pursued by Boris Johnson’s government over Brexit talks and his vow to pull the UK out of the EU by the end of October with or without a deal.
Karen Ward, market strategist at JPMorgan Asset Management, said: “Whilst ‘no deal’ is still not
our expected outcome, the news flow — politically and economically — is likely to get worse before it gets better, so sterling may have further to fall.”
UniCredit on Tuesday said it now sees a 40 per cent chance the UK will leave the EU with no deal, up from its previous forecast of 25 per cent to 30 per cent. Chiara Silvestre, an economist at the Italian bank, said she expected Mr Johnson to call snap elections in early September “in pursuit of a mandate from the electorate for a no-deal Brexit”.
Mr Johnson will travel to Wales on Tuesday where he will meet hill farmers, amid warnings from
farmers’ leaders of “civil unrest” in rural areas if he pushes ahead with a no-deal exit.
The prime minister was booed in Scotland on Monday and faces an equally difficult visit to Northern Ireland this week, where he will attempt to allay fears in the region about the consequences of a no-deal exit.
Mr Johnson’s tour around the UK has been accompanied by front page headlines about the sharp drop in the pound, and that is being keenly felt by British tourists heading abroad for their
summer holiday.
While Mr Johnson insists he believes a deal can be struck with the EU, his no-deal planning minister, Michael Gove, will on Tuesday chair the first daily ministerial meeting to prepare for a disorderly exit on October 31.
