The pound fell to its lowest level against the dollar since the beginning of July on Monday, after Prime Minister Theresa May said the UK would kick of the process of separating from the EU in the first quarter of 2017.
Theresa May has ended weeks of speculation and revealed that she will launch formal Brexit talks with EU leaders before the end of March 2017. The timing means the UK looks set to leave the EU by summer 2019.
The pound was the worst performer among major currencies in early morning trading, down 1 per cent against the dollar at $1.2854, its lowest point since July 6 when it hit $1.2797.
It slid further to $1.2836 as of 4.30 pm in London.
It was also down 1 per cent against the euro at €1.1433, a three-year low in early morning trade, before recovering slightly to €1.1444 at 4.30 pm.
The pound has fallen more than 12 per cent against the dollar since the referendum in June to levels last seen in 1985.
Despite the fall in sterling, the London market has soared to its highest level since June 2015 as investors reacted to a clear indication of when Britain's separation from the EU bloc will happen.
Kathleen Brooks, director of research at City Index, said Theresa May’s speech, which seems to suggest that she is veering towards a ‘hard Brexit’, is likely to come “at the cost” of a period of economic disruption.
This is “likely to be negative for the pound,” Brooks wrote.
Vishnu Varathan, a senior economist at Mizuho Bank in Singapore, said “we’re back to Brexit talks“.
“Sterling has taken a bit of a knock first. If the concerns become wider concerns about financial market contagion, we will find that the slight softening that we’ve seen in the dollar trend will be shaken off,” he told Bloomberg.
The Bank of England’s Monetary Policy Committee (MPC) decided to keep interest rates unchanged at the historic low of 0.25 per cent in September, in line with analysts' expectations but the MPC stuck to its view that they could be cut again later in the year.
Expectations for lower interest rates tend to drag on values of currencies.
Experts have warned that London’s position as a financial hub will be dealt a severe blow if the UK left the single market. However, that access is contingent on countries agreeing to let European Union citizens live and work anywhere in the bloc.
But speaking to delegates on Sunday, Theresa May claimed people who talk about a “trade-off” between controlling immigration and trading with Europe are looking at things the “wrong way”.
“I want it [the deal] to give British companies the maximum freedom to trade with and operate in the Single Market – and let European businesses do the same here.
What experts have said about Brexit
What experts have said about Brexit
1/11 Chancellor of the Exchequer Philip Hammond
The Chancellor claims London can still be a world financial hub despite Brexit “One of Britain’s great strengths is the ability to offer and aggregate all of the services the global financial services industry needs” “This has not changed as a result of the EU referendum and I will do everything I can to ensure the City of London retains its position as the world’s leading international financial centre.”
2/11 Yanis Varoufakis
Greece's former finance minister compared the UK relations with the EU bloc with a well-known song by the Eagles: “You can check out any time you like, as the Hotel California song says, but you can't really leave. The proof is Theresa May has not even dared to trigger Article 50. It's like Harrison Ford going into Indiana Jones' castle and the path behind him fragmenting. You can get in, but getting out is not at all clear”
3/11 Michael O’Leary
Ryanair boss says UK will be ‘screwed’ by EU in Brexit trade deals: “I have no faith in the politicians in London going on about how ‘the world will want to trade with us’. The world will want to screw you – that's what happens in trade talks,” he said. “They have no interest in giving the UK a deal on trade”
4/11 Tim Martin
JD Wetherspoon's chairman has said claims that the UK would see serious economic consequences from a Brexit vote were "lurid" and wrong: “We were told it would be Armageddon from the OECD, from the IMF, David Cameron, the chancellor and President Obama who were predicting locusts in the fields and tidal waves in the North Sea"
5/11 Mark Carney
Governor of Bank of England is 'serene' about Bank of England's Brexit stance: “I am absolutely serene about the … judgments made both by the MPC and the FPC”
6/11 Christine Lagarde
IMF chief urges quick Brexit to reduce economic uncertainty: “We want to see clarity sooner rather than later because we think that a lack of clarity feeds uncertainty, which itself undermines investment appetites and decision making”
7/11 Inga Beale
Lloyd’s chief executive says Brexit is a major issue: "Clearly the UK's referendum on its EU membership is a major issue for us to deal with and we are now focusing our attention on having in place the plans that will ensure Lloyd's continues trading across Europe”
8/11 Colm Kelleher
President of US bank Morgan Stanley says City of London ‘will suffer’ as result of the EU referendum: “I do believe, and I said prior to the referendum, that the City of London will suffer as result of Brexit. The issue is how much”
9/11 Richard Branson
Virgin founder believes we've lost a THIRD of our value because of Brexit and cancelled a deal worth 3,000 jobs: We're not any worse than anybody else, but I suspect we've lost a third of our value which is dreadful for people in the workplace.' He continued: "We were about to do a very big deal, we cancelled that deal, that would have involved 3,000 jobs, and that’s happening all over the country"
10/11 Barack Obama
US President believes Britain was wrong to vote to leave the EU: "It is absolutely true that I believed pre-Brexit vote and continue to believe post-Brexit vote that the world benefited enormously from the United Kingdom's participation in the EU. We are fully supportive of a process that is as little disruptive as possible so that people around the world can continue to benefit from economic growth"
11/11 Kristin Forbes
American economist and an external member of the Monetary Policy Committee of the Bank of England argues that the economy had been “less stormy than many expected” following the shock referendum result: “For now…the economy is experiencing some chop, but no tsunami. The adverse winds could quickly pick up – and merit a stronger policy response. But recently they have shifted to a more favourable direction”
“But let me be clear. We are not leaving the European Union only to give up control of immigration again. And we are not leaving only to return to the jurisdiction of the European Court of Justice.
The EU is the UK’s biggest trading partner.
“If UK exporters will lose access to [the free-trade zone], the question is how quickly can they negotiate bilateral agreements,” Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore, told the WSJ.
“That could be quite difficult,” he added.Reuse content