STERLING plummeted yesterday – sinking to 28-month lows just above $1.22 and sustaining heavy losses against the euro – as signals from Boris Johnson’s Government fuelled fears of a no-deal Brexit.
Michael Gove, who is in charge of no-deal preparations in the Cabinet Office, said over the weekend that the Government “must operate on the assumption” that the UK would leave the European Union without a deal.
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As the pound tumbled on the foreign exchanges yesterday, new Prime Minister Mr Johnson appeared to distance himself from Mr Gove’s comments.
Mr Johnson declared that his assumption was that the UK Government “can get a new deal”.
However, his comments did nothing to improve the fortunes of the embattled pound. And financial market players cited their belief that there was potential for further downside for sterling.
In a campaign video released last month, ahead of his victory over Jeremy Hunt in the Conservative leadership contest, Mr Johnson told a member of the public: “If I get in we’ll come out, deal or no deal, on October the 31st.”
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Newly installed Foreign Secretary Dominic Raab has declared the UK is “turbo-charging” its no-deal preparations and claimed the EU is being “stubborn” in terms of its Brexit negotiating stance.
Sterling was, at 5pm in London yesterday, trading around $1.2235, down by more than one-and-a-half cents on its pre-weekend close. It fell to around $1.2210 during trading, its weakest since March 2017.
The pound is far adrift of the near-$1.50 levels at which it traded on June 23, 2016, ahead of the EU referendum result.
The euro was, at 5pm, trading around 91.07p, up by 1.28p on its Friday close in London. The single currency, which yesterday climbed to its highest levels against the pound since September 2017, was last night, after the London close, trading close to 91.2p.
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Joshua Mahony, senior market analyst at IG, said: “While the likeliness of a no-deal Brexit was evidently growing in the wake of Boris Johnson’s victory, it has taken comments from Michael Gove to bring down the pound. Johnson may have since denied that the Government sees a no-deal Brexit as the most likely outcome, yet the stubborn stance from both sides [makes] it evident that no-deal is inherently more likely than a deal.”
Mr Mahony added: “The prospect of a no-deal Brexit has been the one major driver of sterling weakness throughout this whole process, and thus it comes as no surprise to see the pound slumping to a two-year low in preparation for such an eventuality. With [three] months until the October deadline, there is reason to believe that the pound has plenty more downside to come.”
Ipek Ozkardeskaya, senior market analyst at London Capital Group, said: “Britain’s political scene is a hot mess, and things are getting worse by the day. The pound slumped…on rising prospects of a no-deal Brexit, as the British Government intensifies efforts to leave the European Union by ‘any means necessary’ by [the] October 31 deadline. Lawmakers on the other hand will do whatever is in their power to block a forced no-deal exit which could hammer Britain’s economy for the coming years…The selling pressure in sterling will likely persist as the downside risks persist and increase.”
The pound’s latest woes will be unwelcome for UK holidaymakers travelling abroad, making overseas destinations even more expensive for them.
Nigel Green, founder and chief executive of independent financial adviser deVere Group, said: “For the fourth consecutive summer, millions of British holidaymakers are finding their spending power is negatively impacted by the beleaguered, Brexit-battered pound.”
He added: “Overall, the pound is the worst-performing major currency in the last three months, meaning almost every destination is now more expensive than it was for Brits.”
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