As Boris Johnson has been hardening his tone on his no-deal Brexit the pound fell against the dollar hitting a two year low, as the markets reacted to Johnson’s rhetoric.
Michael Gove wrote in the Sunday Times and said that a “no-deal is now a very real prospect” and the government are now “working on the assumption” of a no-deal Brexit.
Dominic Raab the Foreign secretary said on Monday the EU will have to change their position if a deal is to be achieved.
In response the pound dropped by 0.57% against the US dollar to 1.2313, against the euro the it fell by 0.54% to 1.1070. The Euro zone are having problems as recent manufacturing data has showed the sector is shrinking.
The pound has fallen by 3.4% since Theresa May announced her resignation at the end of May to Monday.
David Cheetham, chief market analyst at XTB said, “Brexit continues to be the dominant theme with a noticeable harshening of the rhetoric in recent days raising concerns amongst traders.
“UK Foreign Secretary Dominic Raab has captured the tone of the latest position from the Government in saying that the EU will need to move on Brexit in remarks that have done little to help the pound’s plight.
“Despite this posturing, significant hurdles would have to be overcome for a no-deal Brexit to be delivered but just the expressed intention to pursue this path is enough to weigh on the pound for the time being.”
Nigel Green, founder and CEO of financial advisory firm deVere Group said, “The pound has been fallen against the euro every year since the referendum, it is now worth around 15% less than before the vote.
“It’s not just those visiting the eurozone who are in for a shock either. Overall, the pound is the worst-performing major currency in the last three months, meaning almost every destination is now more expensive than it was for Brits.”
Neil Wilson, chief market analyst at Markets.com added, “The fresh push to the downside follows an escalation in no-deal risks.
“Specifically, the market has reacted to Michael Gove saying that the Government is ‘working on the assumption’ of a no-deal Brexit.
“It increasingly looks like the Boris Johnson Government is embarking on an overt policy of brinkmanship, specifically designed to take the Nigel Farage Brexit Party out of the equation ahead of a likely election this autumn, and ultimately with the aim of forcing the EU back to the negotiating table.”
Ranko Berich, Head of Market Analysis at Monex Europe said, “The explanation for today’s fresh sterling lows is simple: no-deal Brexit is increasingly looking like the base case as opposed to an outside tail risk. Even with massive fiscal easing of the sort that the Johnson Government appears to be cooking up, a no-deal Brexit risks tipping the already fragile UK economy into recession.
“Despite the pound’s recent losses, we are still nowhere near the bottom. Sterling has weakened some 6% against both the dollar and euro since May when no-deal was a comfortably remote prospect. Both sterling OIS pricing and betting odds point to a roughly 40% implied probability of no-deal as of today. This suggests the pound’s losses if no deal actually happened would be in the order of another 6%, taking GBPUSD below 1.16 and EURGBP above 0.95.
“The ultimate outcome by October remains anyone’s guess, with plausible scenarios ranging from the panglossian to the near apocalyptic. For sterling, the song remains the same: more Brexit means a weaker pound. As long as the Johnson Government and the EU both refuse to compromise on the Irish backstop, no deal will beckon and further sterling losses will accrue.”
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