Sterling slides below $1.29 as Brexit sell-off worsens

Peter Hargreaves says Britain will get a free trade deal
Credit
Jay Williams

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.

Traders said there was no obvious catalyst other than growing anxiety over the lack of progress on Brexit before a series of meetings between the European Union and Britain starting next month.

Sterling/dollar three-month implied volatility - a gauge of how volatile traders expect a currency to be - this week spiked to its highest since early March.

The Brexit related uncertainty has been voiced repeatedly over the course of past few days with the Bank of England Governor Mark Carney sending a warning signal to business and the financial markets on Friday last week saying that the uncertainty related to Brexit negotiations is "uncomfortably high" and the UK Trade minister Liam Fox said on Monday that a no-deal Brexit has a 60 percent chance of happening.

Sterling slid to $1.2842 in mid-morning trading, its weakest since 25 August 2017.

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"Some are thinking in the market that the BoE raised in order to given them ammunition to cut rates in the face of a no- deal", said Neil Jones, head of hedge fund FX sales at Mizuho Bank.

The Pound Euro (GBP/EUR) exchange rate remains close to its worst levels in a year, reflecting the fact that a no-deal Brexit is seemingly a distinct possibility. "The next move [by the central bank] could be a cut rather than another hike".

"We remain bearish on the pound in the short term until the Brexit mess is out the way and look for the currency to enter a US$1.27-1.28 range before the leaders' summit in September", said Nomura strategist Jordan Rochester. 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.

A lull in domestic data has meant that the Pound cannot gain any traction, but an assortment of data tomorrow, including quarterly GDP growth, could give Sterling a sorely-needed lift. It had a similar slump against the euro, down to a nine-month low of €1.11.

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