Sterling steadies against the dollar and euro… but four-day plunge puts pound on track for WORST monthly fall in three years amid mounting fears of No Deal Brexit
- Sterling rises 0.2% against dollar to $1.2175 having hit 28-month lows this week
- Investors have already priced in the increased risk of No Deal Brexit from EU
- Pound is on track for biggest monthly fall against dollar since November 2016
- Boris Johnson insists he will take Britain out by October 31 regardless of a deal
The pound steadied today after four days of steep losses but is still on track for its biggest monthly fall in nearly three years – hitting Britons heading abroad on holiday.
Sterling rose 0.2 per cent against the dollar this morning with investors now already having priced in the increased risk of a No Deal Brexit from the European Union.
But few expect the respite to last long, given Prime Minister Boris Johnson insisting he will take Britain out by October 31 regardless of whether a trading deal is in place.
A board illustrates exchange rates with the dollar and euro in Central London yesterday
The currency has fallen more than 4 per cent this month to the dollar and is down 8 per cent since early May, increasing the cost of holidays abroad for British families.
It rose today to $1.2175, having hit 28-month lows this week at $1.2120. Against the euro, it rose 0.1 per cent higher to 91.7p, off a 22-month low of 91.88p hit yesterday.
The pound is set for a third loss-making month in a row versus the single currency, and is on track for its biggest monthly fall against the dollar since November 2016.
More investors have started to price a No Deal outcome over the past month despite it having earlier been considered highly unlikely.
This graph shows how the pound has fallen more than three cents against the dollar in a week
Many of them say a No Deal Brexit would send shock waves through the world economy and tip Britain’s economy into a recession.
Fiona Cincotta, senior market analyst at City Index, said sterling had lost 4.3 per cent of its value since the beginning of July.
‘Investors’ main concern remains a hard no-deal Brexit which has the potential to pull the economy into chaos,’ she added.
‘Boris Johnson’s new cabinet did little to alleviate those fears, taking a hardline with Europe on forthcoming negotiations.’
The pound has also fallen against the euro over the past week but it rose this morning to €1.097
Justin Onuekwusi, a fund manager at Legal and General, said the pound has become undervalued and is looking to ‘nudge up’ sterling exposure in his portfolios.
But he is currently neutral on the currency and believes the pound will be in thrall to Mr Johnson until Parliament reconvenes in September.
Mr Onuekwusi said: ‘Johnson has just come in so he has to talk tough especially as he has a Brexiteer cabinet.
‘Plus Parliament is on recess so there’s no one to rebuff (pro-Brexit politicians). The Remainers have gone quiet as they are on holiday.’
Members of the public queue at a currency exchange centre in Central London yesterday
The currency could see moves later in the day, as Mr Johnson is visiting Northern Ireland whose border has been the main sticking point in Britain’s talks with the bloc.
While all sides oppose the return of a hard customs border between Northern Ireland and the Republic, hardline Brexiteers are staunchly against the so-called ‘backstop’.
This would see the UK adhere to some EU customs arrangements while a long-term deal is thrashed out.
The head of Sinn Fein said Westminster would have to offer a referendum on Northern Ireland splitting from the UK if the Government pursues a Hard Brexit.
How Britons have been affected by the plunge of the pound
The pound’s plunge on no-deal Brexit fears has come at a terrible time for British holidaymakers as many head abroad over the summer.
Here’s a rundown of the reasons behind sterling’s fall to two-year lows and what it means for Britons:
– Why has the pound fallen so low against the US dollar and the euro?
Sterling has tumbled after new Prime Minister Boris Johnson and his cabinet took a hardline stance on negotiations with the EU over Brexit.
Cabinet minister Michael Gove wrote in the Sunday Times that a ‘no-deal is now a very real prospect’ and the Government is ‘working on the assumption’ of a no-deal Brexit, which sparked a hefty fall in the value of the pound on Monday, with no let-up in the declines on Tuesday.
Mr Johnson has since insisted he will ‘go the extra thousand miles’ to secure a deal, but with just two months to go until the October 31 Brexit deadline, many believe he has set the UK on course for a cliff-edge Brexit.
– How low can the pound go?
Some experts believe the worst-case scenario of a hard Brexit has still not yet been fully priced into the pound, which could well mean further falls as the Brexit deadline looms large and with speculation mounting over a snap general election.
There are fears the pound could hit parity with the euro or fall below – already having slumped to 1.09 against the single currency – and even reach parity with the US dollar as the Brexit woes unfold.
– What does this mean for Britons?
The immediate impact of the falling pound is being felt by British travellers heading off for their holidays.
Tourist rates have already seen the pound fall below parity at airports, where holidaymakers are being offered as little as 97 euro cents for their pound.
This means that travellers to Europe will find their pound does not go very far while they will also get a poor dollar rate if they are going to the US or countries where the greenback is the main currency – hiking up the cost of everything from accommodation to food.
Nigel Green, founder and CEO of financial advisory firm deVere Group, said the falling pound will have an impact on holidaymakers wherever they travel.
He said: ‘Even destinations such as Dubai and China are more expensive as their currencies are pegged to the US dollar.’
‘Overall, the pound is the worst-performing major currency in the last three months, meaning almost every destination is now more expensive than it was for Brits,’ he added.
– Is it just holidaymakers who will be affected by the pound’s tumble?
Unfortunately, all UK consumers stand to be impacted by a sustained plummet in the value of the pound, because it makes it more expensive for retailers and manufacturers to import food, goods and materials.
This means prices will be pushed up for goods and services, sending UK inflation rising and hitting Britons hard in the pocket.
– Are there any benefits to a falling pound?
A weak pound can prove helpful in a number of ways, by making it cheaper for foreign companies to buy UK goods and boosting exports as a result.
It can also increase foreign investment in the UK, for example in property and in shares.
The FTSE 100 Index on London’s stock market usually rises when the pound falls as it is dominated by internationally-focused firms, which trade largely in US dollars.
A falling pound can also increase tourism to the UK, with overseas travellers looking to make the most of a better exchange rate.
This offers a boost to retailers and other sectors, such as restaurants and leisure attractions.
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