Sterling at 4-month lows as political clouds gather in UK

UK currency suffering while Brexit uncertainty increases

Also weighing on sterling in recent weeks has been a firmer dollar. Photograph: iStock

Also weighing on sterling in recent weeks has been a firmer dollar. Photograph: iStock

 

Sterling hit a new four-month low of 87.99p against the euro and fell below $1.27 for the first time since mid-January, battered by dollar strength and growing Brexit fears.

Brexit uncertainty has risen in recent weeks after the breakdown of talks between prime minister Theresa May and the opposition Labour party. That has set the stage for Mrs May’s thrice-rejected Brexit deal to fail again if, as planned, it is put to vote in the UK parliament next month.

Also weighing on sterling in recent weeks has been a firmer dollar, which has benefited from an escalation in trade tensions between Washington and Beijing.

Rejection of the Brexit deal yet again would likely pave the way for Mrs May to be replaced by a more hardline eurosceptic Tory, possibly Boris Johnson.

The Times of London newspaper quoted a senior source as saying the UK government was prepared for resignations after a cabinet meeting where Mrs May would ask ministers to back concessions to Labour to get a Brexit agreement over the line.

But pro-Brexit hardliners will almost certainly reject any effort to soften the proposal, which could include an offer to stay in a customs union with the EU.

Accumulation of disappointments

“There’s been an accumulation of disappointments since the start of this month as it’s become clear the talks with Labour had stalled. The possibility of some kind of agreement had generated relative stability since late-February but that’s over now” said Neil Mellor, a strategist at BNY Mellon.

Trepidation about the upcoming cabinet meeting was adding to nervousness, he said, adding: “It’s all much of the same, the uncertainty is what’s doing the damage.”

The pound slipped 0.2 per cent to $1.2688 while against the euro it was down 0.14 per cent to a new four-month low of 87.88 pence .

Sterling’s weakness was exacerbated by the dollar rising to 2-1/2 week highs against major currencies, thanks to safe-haven flows sparked by the US-China trade row. – Reuters