Sterling latest selloff followed reports that Britain could lose £66 billion of tax revenues each year if the UK takes the plunge with a ‘hard Brexit’
The pound was down 0.61 per cent at $1.2290 against the dollar in early trading on Tuesday - this would be a new 31-year low for the currency, if you ignored the flash crash that sent sterling tumbling by more than 6 per cent on Friday.
At noon, the pound was still at trading at less than $1.23.
Sterling has also lost fresh ground against the euro, down 0.33 per cent to €1.106.
At lunchtime The FTSE 100 index has reached a new all-time intraday high, up 30 points at 7129. This breaks the previous record set in April 2015.
The index was at 7,115.47 at noon - a rise of just 0.25 per cent or 1786 points.
The currency has been this year’s worst performer among 32 major currencies tracked by Bloomberg.
Kit Juckes, currency expert at Societe Generale, said she fears that the weakness of the pound could spread to other assets, such as government bonds and shares.
"In real effective terms, sterling is 10% lower than it was in 1992 after leaving the ERM and is now weaker than it was after Lehman."
"Press comment is now shifting to embracing the positive effects of a weak pound and in due course that’ll be true but any further weakness from here might simply reflect loss of confidence and be bad for UK assets (gilts, equities, house prices, you name it...) in general."
Sterling has been under pressure for more than a week as Prime ministers Theresa May at the Conservative Party conference hinted she would opt for a “hard Brexit” settlement that sacrifices access to the single market and prioritises stricter immigration controls.
Brexit Secretary David Davis dismissed calls for him and his fellow ministers to be "careful with their words" to prevent further volatility and sharp declines.
He told parliament on Monday: “There will be lots of speculative comments in the next two-and-a-half-years that will drive the pound down and up and down and up and there is little we can do about that.”
But currency experts expect the pound to remain under pressure against the dollar on continued fears about the UK economic outlook.
Kathleen Brooks, research director of City Index, said she feared political talk of a “hard Brexit” had made the pound “toxic” as speculators bet against it.
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”
Neil Wilson of City firm ETX Capital said the“sharp moves” in the value of the pound could drive sterling down to $1.20.
He said: "GBP/USD crashed through the $1.23 handle to around 1.2284, its lowest level since last week’s gyrations. It’s not unreasonable to think that ferocious flash crash was just a very tentative toe in the water and the pound is now plunging headlong into the abyss."
"Sterling seems to be looking for a level and it’s really unclear where that could be and so bargain hunting is a risky game to play at the moment. The $1.20 handle earmarked by many before the referendum is definitely in play as everyone seems to be short sterling at present."
Goldman Sachs said its three-month forecast was for the pound to fall to $1.20, while Rabobank revised down its forecast for sterling after last week’s sharp falls and expects the pound to drop to $1.18 by mid-2017.
HSBC, meanwhile, predicted the pound will fall to $1.10 against the dollar and hit parity against the euro by the end of 2017.Reuse content