Sterling tumbled to its weakest since April 2017 after prime minister Theresa May pulled a parliamentary vote on her Brexit deal with the European Union, panicking investors about deepening political uncertainty in Britain.
Mrs May said on Monday she was delaying the planned vote as her deal would probably be rejected “by a significant margin”. Colleagues had told Mrs May she faced a rout in the vote, that was set for Tuesday.
The move thrusts the UK’s exit from the European Union into turmoil, with possible options including a disorderly no-deal Brexit, another referendum on EU membership or a last-minute renegotiation of May’s deal with Brussels.
Mrs May said she would do all she could to secure further assurances from the EU on the so-called backstop arrangement, a crucial part of the deal bitterly opposed by many of her fellow Conservatives and opposition parties.
“Uncertainty is the only thing hitting the pound at the moment,” said Kallum Pickering, an economist at Berenberg.
The pound fell 1.6 per cent against the dollar to as low as $1.2507, most of the loss coming after May confirmed she was delaying the vote.
Against the euro, the pound dropped 1.5 per cent to as weak as 90.875 pence, its lowest since August, before recovering some ground in late European trading.
Selling pressure
Britain’s exporter-heavy Ftse 100 index, which usually rises when sterling falls, succumbed to widespread selling pressure and fell 0.8 per cent as investors fretted about the consequences of the political chaos for UK companies.
The more domestic Ftse 250 index tumbled 2 per cent.
Perceived safe-haven British government bonds rallied, with 10-year British government bond yields falling 7.5 basis points to 1.19 per cent, the lowest since mid-August.
While the government considers when to next hold a parliamentary vote, it is stepping up contingency planning for a no-deal Brexit when it is due to leave on March 29th.
The pound has fallen for four consecutive weeks, with traders struggling to comprehend the vote options and consequences of more political instability.
Earlier on Monday, the EU’s top court ruled that Britain could unilaterally reverse its decision to leave, easing concerns about Britain crashing out of the bloc in March without a deal.
But analysts said sterling’s weakness on Monday reflected concerns about Mrs May’s future as prime minister and the worsening uncertainty. Some analysts saw a silver lining in May’s decision to postpone the vote.
Mr Pickering at Berenberg said the delay would end with the British parliament gaining a greater say on the withdrawal agreement and the sort of Brexit that the UK gets.
“This is ultimately a process towards softer Brexit, so the pound is reacting more to the uncertainty because, from my point of view, this is mostly a positive development,” he said.– Reuters
