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Sterling Touches Two-Year Low as Traders Hedge Grow in Brexit Risk

Sterling declined below $1.24 on Wednesday, levels not plumbed for over two years, as traders continued to price the increasing risk of Britain’s crashing out of the European Union without a transition deal in place.

With economic data further displaying the UK economy coping, putting more strain on the Bank of England to ease fiscal policy, traders are taking to currency derivatives and futures markets to bet on more weakness.

After dropping to as low as $1.2382, the pound later bounced slightly on Wednesday to trade at $1.2426 GBP=D3, up 0.2% on the day; however, the currency stays under strain.

In October 2016, the British currency fell briefly below $1.15, its weakest in more than than 30 years, throughout a flash crash in the forex markets in early Asian trading sessions.

It has since regained, strengthening to nearly $1.34 earlier this year. However, fears the subsequent British Prime Minister will drag Britain out of the EU without a deal have prompted merchants to drop the pound in recent times.

Arch-Brexiteer Boris Johnson is the one to become Conservative Party chief subsequent week and thus the next prime minister. Johnson and his contestant for the leadership, Jeremy Hunt, have been competing with one another to show party members their readiness to force a “hard” Brexit.

The pound has lost 1% against the euro this month and over 2% against the greenback, putting it on track for its greatest month-to-month fall since June 2018.

It’s this year’s worst-performing G10 currency against the greenback. HSBC strategists said a “no-deal” would push the pound to $1.10.

Against the euro, sterling fell to as little as 90.51 pence EURGBP=D3 on Wednesday, a new six-month low, before regaining to 90.285 by 1445 GMT.

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Nina Sanders

Nina is the lead of the Currency column. She had joined the group as a part-time writer in 2006, covering the stock market, startups, earnings, and economy. Nina completed her Bachelors of Arts degree from the University of California specializing in Journalism and Geography.

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