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Business News/ News / World/  Pound slides 1.6% ahead of British PM Theresa May’s Brexit speech
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Pound slides 1.6% ahead of British PM Theresa May’s Brexit speech

The pound fell as much as 1.6% on Monday to $1.1986, the weakest level since 7 October when it reached $1.1841, the least since 1985

Pound has slumped 19% against the dollar since the UK opted to leave the EU in June’s referendum. Photo: ReutersPremium
Pound has slumped 19% against the dollar since the UK opted to leave the EU in June’s referendum. Photo: Reuters

London: The pound slid below $1.20 for the first time since October’s flash crash, after reports that UK Prime Minister Theresa May will signal plans to quit the European Union’s single market to regain control of Britain’s borders and laws.

Sterling declined against all its major peers after The Sunday Times said May will prepare to withdraw from tariff-free trade with the region in return for the ability to curb immigration and strike commercial deals with other countries. The currency has slumped 19% against the dollar since the UK opted to leave the EU in June’s referendum, with declines since the initial aftermath of the vote mainly sparked by concern May would pursue a so-called hard Brexit.

The Sunday Times didn’t say how its obtained the information, and the prime minister’s office declined to comment on the report when contacted by Bloomberg News. Government officials told the newspaper they expect May’s speech on Tuesday to cause a further “market correction."

“Even if the pound recovers somewhat in London, it seems as though the realities of a hard Brexit are still not fully priced in," said Sean Callow, senior strategist at Westpac Banking Corp. in Sydney. “It is difficult to make the case for the pound to avoid testing -- probably breaking -- the ‘flash crash’ lows in coming weeks."

The pound fell as much as 1.6% on Monday to $1.1986, the weakest level since 7 October when it reached $1.1841, the least since 1985. It was down 1.2% at $1.2028 as of 9.09 am in Tokyo.

The currency trimmed some of its losses after Bloomberg News reported the UK Treasury is drawing up plans to reassure investors following May’s speech on Tuesday, and as US President-elect Donald Trump told the Times that he will offer the UK a “fair" trade deal.

A measure of anticipated price swings for the pound jumped when the date for May’s speech was announced last week as traders sought protection against more turmoil. With details of the UK’s exit strategy remaining scant less than three months before the Prime Minister’s own deadline to trigger formal talks with the EU, traders have previously seen her pronouncements on Brexit as a trigger to sell the pound, even if she has mainly reiterated existing views.

Sterling fell following her speech at the Conservative Party conference in October, which fanned speculation she was eyeing a clean break with the EU, and dropped to the lowest level since October last week following her first television interview of 2017.

May’s speech isn’t the only approaching Brexit milestone. The Supreme Court is set to rule this month whether May or Parliament carries the power to invoke the exit, although few see the process being derailed either way.

“The pound risks a violent rally to cover short positions if the UK Supreme Court rules to support Parliament," said Naohiro Nomoto, manager of foreign-exchange trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo.

The pound has previously been prone to outsized swings during Asian trading, with the most extreme being October’s flash crash, which saw the currency tumble more than 6 percent in a matter of minutes. While an investigation by the Bank for International Settlements released last week found no single cause for the event, it highlighted that the time of day played a significant role in making the market more vulnerable. Bloomberg

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Published: 16 Jan 2017, 10:30 AM IST
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