LONDON: Heightened worries of a no-deal Brexit and the growing probability of a general election after the October Brexit deadline kept the pound subdued on Monday, after it hit a 23-month low against the euro.
Versus the dollar, the British currency was not far from the 31-month low it reached last week.
A better-than-expected services purchasing managers’ survey for July failed to lift the pound as it reinforced fears that Brexit risks and US-China trade tensions are pushing the British economy close to recession. The July PMI rose to 51.4 from 50.2 in June.
“The likelihood of a no deal exit (from the European Union) looks higher now than it has been at any point since 2016 (the year of Brexit referendum),” said John Wraith, head of UK rates strategy at UBS.
The risk is that “we’re already past the point of no return,” Wraith said.
Over the weekend, headlines suggested the UK parliament may not have time to stop Britain leaving the European Union without trade agreements in place even if it wants to. Prime Minister Boris Johnson and his cabinet have said multiple times they are ready to quit the EU on the Oct. 31 deadline, regardless of whether a deal is in place.
But pro-EU members of parliament could seek to topple Johnson’s government by preparing for a “people versus the politicians” election after the UK quits in October. Downing Street officials are preparing for the loss of a confidence vote when parliament returns from recess in September.
A by-election victory for Liberal Democrats last week left the Conservative party with a majority of just one seat in parliament, making it harder for the Tories to pass any Brexit-related decisions. The election also highlighted the need for collaboration between the Tories and Brexit Party, compounding the risk of a no-deal Brexit, analysts say.
The pound was last down by 0.6% at 91.86 pence against the euro, after falling as low as 92 pence mid-morning, the lowest it has been since September 2017. Versus the dollar, the pound was flat at $1.2164, though not far from last week’s January 2017 low of $1.2080.
A more dramatic fall has been seen versus the safe-haven Swiss franc, against which sterling has lost more than 11% of its value since early May this year.
“The pound looks set to remain under pressure for now,” said Craig Erlam, an analyst at Oanda.
“There’s plenty of UK data out this week, starting with the July Services PMI today and ending with second-quarter growth data on Friday. Unfortunately, I fear anyone hoping for some reprieve from the data this week may be disappointed,” Erlam said.
Most investors remain on the sidelines and prefer not to take any views on sterling until some clarity emerges regarding Brexit.
“The market direction is hard to fight right now … We still advise our clients to remain quite cautious on sterling,” said Vincent Manuel, global chief investment officer at Indosuez Wealth Management.
Leveraged funds mirrored the negative view on sterling and added more net short positions in the week to July 30, pushing the value of contracts to $6.89 billion, its highest since early May 2017, based on latest data from Commodity Futures Trading Commission.