Sterling fell to a fresh 31-year low against the dollar on Monday as investors continued to be rattled by Friday’s “flash crash” in which the UK currency plunged within minutes and also fretted about the prospects of a “hard Brexit”.
The pound fell 0.6 per cent during European trade to $1.25. However, it was little changed against the euro, having dropped almost 4 per cent last week to a five-year low of 90p after British prime minister Theresa May said she would trigger the start of talks on exiting the EU by the end of March.
Traders hoping that Ms May would shed more light on how she will approach negotiations were left disappointed by her meetings with Danish and Dutch counterparts on Monday.
“It appears as if there’s quite a lot of work that needs to be done in the UK before there’s a clear view of what the British want,” Danish premier Lars Lokke Rasmusson said in an interview on Monday.
While the market was caught off guard by the speed at which euro surged to, and breached 90p, last week, strategists at US banking giant JP Morgan now forecast that the exchange rate will reach 95p by the year end. They also see sterling falling to $1.21 over the coming months.
Closer to parity
“We sense there might be a bit more to go [in sterling’s decline],” said Simon Phillips, director of Kerry-based Fexco’s retail foreign exchange division, which spans the UK and Ireland. “There’s a lot going on over the next couple of years [in relation to Brexit]. I suppose it is very possible we could be moving closer to parity.”
The closest the two currencies came to this scenario was at the end of 2008, when the rate hit 97.5p.
Fexco retail currency business, whose main customers are people travelling overseas, saw a 25 per cent surge in sterling buying in Ireland at the end of last week, compared to the same period in the prior week.
“We’re not in the business of dealing with currency speculators generally, but people obviously thought it was a good time to get hold of sterling,” Mr Phillips said.
Losing steam
Meanwhile, two major UK business surveys published on Monday indicated that the world’s fifth largest economy appears to be losing steam, heightening concerns about the longer-term impact of the Brexit vote.
Business investment and turnover confidence is currently trailing at four-year lows, the British Chambers of Commerce said in a quarterly survey of 7,000 businesses, the largest of its kind. The poll was carried out between August 22nd and September 12th.
Separately, chief financial officers in major British firms between September 12th and September 26th reported only a partial rebound in business morale after a post-Brexit vote nosedive, accountants Deloitte reported.
Both surveys were conducted before the UK government alarmed employers and financial markets last week by outlining plans to force businesses to list the proportion of foreign staff and “flush out” firms not doing enough to hire British workers. – (Additional reporting: Bloomberg, Reuters.)
