By Ian McConnell
STERLING dropped below $1.30 yesterday morning to its weakest levels against the US currency for six weeks, as fears of a no-deal Brexit weighed.
It clawed its way back to end the session marginally higher following news of a slowing decline in UK construction activity.
Fears that the UK may be unable to reach a deep free-trade agreement with the European Union during the 11-month transition period have been fuelled by tough talk from Prime Minister Boris Johnson.
Mr Johnson has this week highlighted his view that there will be “no need” for a free-trade agreement to involve the UK accepting EU rules on competition policy, subsidies, social protection, the environment or “anything similar”.
Sterling yesterday dropped to an intra-day low of $1.2939, before recovering to trade around $1.3029 at 5pm in London, up from a Monday close of $1.3005.
The pound rose sharply against the dollar in the immediate wake of the December 12 General Election but had given up all of these gains by the following week after Mr Johnson ruled out extending the transition period beyond the end of this year. The pound traded around $1.31 as voters went to the polls on December 12. It then spiked above $1.35 in the wake of an exit poll published immediately after the polling stations closed at 10pm, which showed a clear Conservative majority.
A survey showing the decline in the UK construction sector slowing in January to its weakest pace in eight months was cited as a factor which lent some support to the pound yesterday.
The survey, published by the Chartered Institute of Procurement & Supply, also signalled a rise in optimism among construction companies about the prospects for increased activity on a 12-month horizon to its strongest since April 2018.
CIPS’s construction activity index rose from 44.4 in December to 48.4 in January on a seasonally adjusted basis, albeit remaining below the level of 50 deemed to separate expansion from contraction.
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