LONDON: Sterling sank by more than 1 percent against the euro on Tuesday, handing back much of three days of solid gains as media reports refocused traders' attention on the political risks associated with Britain's departure from the European Union.
According to a leaked memo, Britain has no overall plan for Brexit and its strategy for leaving the bloc may take six months to agree due to divisions in Prime Minister Theresa May's government. May's office said it did not recognise the claims made in the document.
Adding to pressure on the pound was a lower than expected reading which showed inflation still less than half of the Bank of England's 2 percent target.
A rout on bond markets and a surge in concern over elections in major European countries next year have sent the dollar soaring against the euro in the past week and offered cover to any who wanted to cash in gains built up by betting on the pound's collapse since June.
But ahead of the formal launch of exit talks with Brussels early next year, sterling remains among the "sells" of choice for speculative and many long-term players.
"Added newsflow around Brexit means that there is still added downside pressure for sterling," said James Hughes, chief market analyst with retail broker GKFX in London.
The pound fell as much as 1.3 percent to 87.07 pence per euro before recovering to 86.92 pence. It also lost more than half a percent to $1.2417.
British government bond futures jumped by more than 40 ticks after the inflation data to peak at 124.41 at 0835 GMT, up 93 ticks on the day, before paring gains slightly. Ten-year yields were down 5 basis points on the day at 1.36 percent.
"Our base case is that the Brexit negotiation process will not be easy, and that uncertainty will continue," HSBC Global Head of FX Strategy David Bloom said in a special report on the outlook for G10 currencies.
"We therefore continue to see significant downside risks for sterling and forecast GBP-USD at 1.20 for year-end 2016 and 1.10 for year-end 2017."
Comments
Comments are closed for this article.