On Sunday, Prime Minister Theresa May ended weeks of speculation, revealing 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 currency has fallen below the “psychologically important” $1.27 level, down 0.3 per cent to $1.2695 in early trading on Wednesday, extending Tuesday’s selloff.
It scraped back just above $1.27 by 11am on Wednesday and went up by just 1.3 per cent on the day.
Sterling hit a five-year low against the euro, hitting €1.1308 at one point, before recovering to €1.1340.
London’s stock market also dropped in early trading.
The FTSE 1000, which almost hit a record high on Tuesday, dropped by 18 points to 7,056.
Heading into the close, London's leading share index was 41 points lower than the previous day.
The FTSE 250, which is more dependent on the UK economy than the multinational companies represented in the FTSE 100, has also falllen by 0.2 per cent. The index fell by 0.77 per cent on the day.
Lukman Otunuga, an FXTM research analyst, said investors are not taking comfort from the recent solid economic data.
“Brexit jitters may be bone deep, consequently ensuring the sterling remains depressed until the Article 50 invoke date.
“Although sentiment towards the UK economy continues to be uplifted as domestic data repeatedly beats, the persistent uncertainty and unknowns over how the Brexit negotiations will take place have seriously soured investor appetite towards the sterling.”
Some analysts are predicting the pound could slump even further as the process of leaving the EU gets underway.
“The pound’s drop is likely to be a series of spaced-out depreciations, with the trigger for weakness being each piece of new information on the economic sacrifice that the UK Government is willing to take on the path to Brexit,” Koon Chow, macro and forex strategist at UBP, told the Financial Times.
The currency is being rattled by fears about a hard brexit that could see UK companies lose access to the single market.
Britain’s finance sector is concerned it might lose its passporting rights, which ease access to business in the EU’s member states.
Last month, Andrew Tyrie, the chairman of the Treasury Select Committee, revealed the scale of the threat to the UK’s financial services sectors, saying nearly 5,500 British firms hold at least one passport to do business in another member state of the EU or the wider European Economic Area (EEA).
Financial institutions and banks including UBS and JP Morgan Chase have warned they could move staff out of London as the capital becomes a less important financial centre, depending on the terms of the departure from the EU bloc.
Lloyd’s of London chairman John Nelson previously described the UK’s vote to leave the EU as a “major issue”, saying it is working on contingency plans to ensure it can still trade across Europe when Article 50 is triggered.
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