Pound tumbles as election speculation mounts and MPs prepare for Brexit showdown

Sterling plunges to lowest point in weeks on eve of parliamentary battle over no-deal

The pound has tumbled sharply against the US dollar as speculation mounts that Boris Johnson is planning to call a snap general election.

Sterling plunged more than a cent to $1.2036 on Monday afternoon on the eve of a parliamentary showdown over the threat of a no-deal Brexit.

The fall came after the prime minister summoned his cabinet to a surprise meeting amid reports of a planned purge of Conservative MPs who join an opposition bid to stop the UK crashing out of the EU.

“This move is a reaction to the news from the whips office that Conservative MPs could be expelled,” said Jane Foley, head of currency strategy at Rabobank.

“That means even though the opposition will try and rush through this legislation to stop no deal it’s really not clear who will win.”

The pound’s drop in value also followed the announcement of dismal manufacturing data which showed the sector shrank at the fastest pace since 2012 in August.

The IHS Markit/CIPS purchasing managers index (PMI) slumped to 47.4 last month, down from 48 in July.

Sterling’s low point on Monday was not far short of the $1.2015 touched on 12 August, its weakest value since 2017.

Against the euro it declined as much as 0.7 per cent to 91.010 pence.

The pound has fallen close to 4 per cent since Mr Johnson entered Downing Street in July.

Investors have upped their bets on a no-deal Brexit due to his “do or die” rhetoric, but the possibility of a snap vote adds another layer of uncertainty.

“A snap election would initially be seen as pound negative given the government is expected to win on a no-deal platform,” said Lee Hardman, an analyst at MUFG.

“We would expect to see cable initially fall below $1.20, and then toward $1.10 if the government wins a majority and seeks no deal, if the EU does not back down on the backstop.”

Traders were warned to expect much more volatility in sterling in the coming months.

“If GBP was looking remarkably resilient to UK political news at the end of last week, its nerve has given way this morning. The pound has fallen sharply in European hours ahead of what promises to be a week full of twists and turns in Westminster,” Rabobank said in a research note.