Sterling fell to 28-month lows on Monday and headed for its greatest daily dip versus the greenback since November as traders scrambled to factor in the risk of a no-deal Brexit and the possibility of a fastening election.
A still-deeper sink in sterling stays on the cards; all metrics show that a disorderly British exit from the European Union is far from being fully valued in.
While most traders have until now wager on a last-minute deal to avert a tough Brexit, that expectation is shrinking under new Prime Minister Boris Johnson.
Sterling losses quickened after it violated a critical psychological level of $1.23 and Johnson repeated that while he wanted to reach a brand new trade agreement with the EU, the UK would exit the bloc on Oct. 31 with or without a deal.
By 1600 GMT it was down 1.3% at $1.2229 after knocking $1.2213 earlier, its lowest since March 2017. Versus the euro, the pound reached 91.16 pence, its most decrepit since September 2017.
“All the stops are out, and the pound is now in free fall,” Neil Wilson, an analyst at online brokerage Markets.com, stated, adding the pound may drown to $1.21 if the $1.22 level was breached.
The British government mentioned Monday it assumed there would be a no-deal Brexit as a result of a “stubborn” EU was declining to renegotiate their divorce.
The 27 other EU representatives have repeatedly said the divorce settlement shouldn’t be up for discussion.
Adding to the pound’s works is the possibility of an early parliamentary election. The Conservative Party has surged in opinion polls since Johnson became chief, per YouGov, which confirmed support for the party at 31%, well above the opposition Labour Party.