Sterling crashed to 2-1/2 year lows this morning and fell towards the $1.21 mark versus the dollar as the growing likelihood of a disorderly Brexit led investors to hedge or cut their exposure to British assets.
Sterling traded as high as $1.32 in early-May, having fallen steadily since then, with losses accelerating since July 24 when new Prime Minister Boris Johnson took over as prime minister with the explicit agenda of taking Britain out of the EU, whether or not transitional trading agreements are in place.
The likelihood of that outcome, potentially catastrophic for the British economy, was seen to have increased as Johnson appointed a cabinet packed with Brexit proponents. That, alongside his tough line with the EU, has dashed prospects of a last-minute deal.
The British currency has shed around 2.4% of its value since Johnson took over.
Adding to concerns is the possibility of a snap election which could well see Johnson strengthen his position — weekend opinion polls showed him with a significant lead over the opposition Labour Party.
The current parliament is resolutely opposed to no-deal Brexit but an election that provides Johnson with a big majority would allow him to overcome that obstacle.
The Fed are expected to cut interest rates this week, ECB will ore than likely cut rates next month, however Brexit is the main market mover and will continue to be until we leave.
The decrease in value of Sterling is far but over, we expect this to continue dropping in the foreseeable future. If you have any payments coming up, call us to discuss how we can help you mitigate further exposure.