No-deal fear pushes pound to a record low

Peter Hargreaves says Britain will get a free trade deal
Credit
Jay Williams

"What we are seeing is broad sterling weakness, a very aggressive weakening trend", said Peter Kinsella, strategist at Commonwealth Bank of Australia.

The news of no-deal Brexit weighs on Sterling sending it to the lowest level since August 31 a year ago and coupled with earlier comments of the outgoing Monetary Policy Committee (MPC) member Ian McCafferty who added to the no-deal Brexit fear in public debate together with dovish monetary policy outlook.

The pound is also down 0.58% against the euro and down 0.86% against the Japanese yen. The vol, as the measure is known, was headed for its biggest one-day jump since November.

According to Christophe Barraud, an economist at Market Securities brokerage in Paris a lot of companies can't wait for the [Brexit] negotiations outcome in October, so of course are trying to hedge against a drop in the pound.

Travellers exchanging currency at Heathrow were being offered as little as $1.08 or €0.93 for £1.

Sterling slumped 0.6 percent versus the euro to 90.175 pence.

Bank of England Governor Mark Carney warned last week that the risk of a no-deal was "uncomfortably high".

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The BoE raised interest rates from crisis-era lows last week but the pound didn't benefit.

HSBC executives have since the Brexit vote in June 2016 maintained that the bank will be among the last to have to make such moves because it has a fully-licensed French banking subsidiary rather than branches that other banks have had to convert.

Risk reversals - used commonly to hedge against expected currency moves - in sterling/dollar fell to their lowest since early March 2017.

While most of the blame for the pound's tumble has been put squarely on fears of the United Kingdom crashing out of the European Union without a deal, analysts have been keen to point out that August has always been a hard month for the currency.

"Right now we're short of any meaningful news flow and uncertainty is high - that's not a good thing", said Jordan Rochester, an analyst at Nomura International Plc.

The pound has fallen more than 10 per cent since mid-April versus the dollar.

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