Sterling hits 31-year low against the dollar

Sterling slid to its weakest level in more than three decades against a dollar that was trading stronger across the board on Tuesday, hit by fears over the impact of Britain’s departure from the EU.

The greenback reached a 13-day high against a basket of major currencies, helped by gains against the yen and by an upbeat survey of the US manufacturing sector that drove investors to increase their bets on a rise in US interest rates by the end of the year.

The pound had already shed more than 1 per cent the previous day on the back of British prime minister Theresa May’s announcement on Sunday that the formal process that would take Britain out of the EU would start by the end of March.

It extended those falls on Tuesday, slipping more than half a per cent to $1.2757, its weakest since June 1985.

That left it down 15 per cent since Britain’s June 23rd referendum on EU membership. The euro was trading at £0.87478 early on Tuesday, having hit three year lows on Monday.

Many in the market worry that the UK government’s stance points to a “hard Brexit” in which Britain quits the single market in favour of retaining control over migration and which could drive an exodus of banks from London.

Financial sector

“The headlines we’ve been seeing in the last few days...have been focusing the market’s attention on the big structural challenges that the UK is facing, particularly if it’s going to be ‘hard’ rather than a ‘soft’ Brexit,” said HSBC FX strategist Dominic Bunning, highlighting a report suggesting post-Brexit Britain would not be supportive of the financial sector.

Mr Bunning said investors were worried that if Britain’s huge financial services industry takes a big hit from Brexit, that could help widen an already gaping current account deficit.

While the turmoil in the days and weeks following the EU referendum spurred demand for safe-havens like the yen, analysts pointed out that the latest slide in the pound had yet to trigger a similar reaction. – Reuters