Pound falls below $1.20 in new 35-month low
Sterling could sink further as MPs return for Brexit showdown, economists say
The pound has plunged below $1.20 to its weakest value in 35 months as traders brace for a chaotic week in British politics.
Sterling fell to $1.1971 on Tuesday morning as Boris Johnson prepares for a showdown with opposition MPs and Tory rebels seeking to block a no-deal Brexit. The currency was at its lowest against the dollar since 1985, except for the October 2016 flash crash.
City analysts predicted the pound could slump further as parliament reconvenes following the summer break amid speculation of a snap general election and continued uncertainty over the UK’s exit from the EU.
The prime minister is expected to call an election for 14 October if he loses a crunch vote designed to stop Britain crashing out without a deal.
Neil Wilson, of Markets.com, said: “Ignoring the flash crash, we are very much in uncharted waters here. We could feasibly see 1.15 or even 1.10 in the coming weeks if traders decide to move against the pound.
“Elections are never easy to call – the risk of Corbyn to UK assets is probably greater than a no-deal Brexit, after all. The outlook for sterling may well worsen if there is an election and will certainly deteriorate if it’s a no-deal.”
Senior government officials have indicated Mr Johnson is confident a motion to call an election would be backed by the two-thirds of a majority in the Commons required to trigger an early poll under the Fixed Terms Parliaments Act.
Speaking outside parliament on Monday evening the prime minister insisted he did not want an election, but Downing Street sources have said he could call a vote if MPs acted to block a no-deal Brexit.
“The latest pound weakness may reflect the fact that recent polls are suggesting that the pro-Brexit Tory party, Brexit Party and the DUP could come close to winning a majority [in a general election] and thus be able to deliver Brexit with or without deal,” said Valentin Marinov, foreign exchange analyst at Credit Agricole.
He said sterling could sink further as Tuesday progresses “and especially if an early election becomes likelier”.
Craig Erlam, senior market analyst at oanda.com, said the pound’s fall below 1.20 US dollars was “more of a psychological blow”.
He said: “The currency hasn’t gone into free-fall since, suggesting calmer heads still remain, for now. But it does suggest traders are increasingly seeing no positive outcome in the near-term.
“In the best case we have the uncertainty of an extension [to Brexit], in the worst case we could be headed for no deal or a Corbyn government, which markets appear to dislike.”
The pound was also trading lower against the euro, down 0.6 per cent at €1.09.
The FTSE 100 Index was 4.9 points lower at 7277.1, having closed up 74.76 points at 7,281.94 on Monday.
Subscribe to Independent Premium to bookmark this article
Want to bookmark your favourite articles and stories to read or reference later? Start your Independent Premium subscription today.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies