Sterling has dropped below $1.20 this morning to a three-year low, as Prime Minister Boris Johnson’s implicit ultimatum to lawmakers to back him on Brexit or face an election sent investors scrambling to dump British assets.
Barring an October 2016 ‘flash crash’ when sterling momentarily tanked to as low as $1.15, the British currency has not regularly traded at these levels since 1985.
The battle over Brexit is heating up this week. Johnson implicitly warned lawmakers he would seek an election if they tied his hands-on Brexit, ruling out ever countenancing a further delay to Britain’s departure from the European Union, its largest trading partner.
Lawmakers will vote today on the first stage of their plan to block Johnson from pursuing a no-deal Brexit ahead of the Oct. 31 deadline.
Investors are panicking that Britain will either crash out of the bloc on Oct. 31 without a transitional deal to ease the divorce or face a parliamentary election that sows’ uncertainty at a time when the economy is struggling with a global slowdown exacerbated by a trade war between Washington and Beijing.
The next 48 hours are potentially quite significant, and sterling shows you.
The next 48 hours will determine whether or not this high-risk strategy from the prime minister has paid off, or whether or not he has been corralled into a corner, or conversely still there a several options where we are simply going for the uncertainty of an election mid-October.