Brexit will cause the pound to fall to €1 and $1.10 by end of 2017, HSBC predicts

HSBC said sterling has become a political currency

Zlata Rodionova

Friday 07 October 2016 11:50

The pound has been under increased pressure since the Prime Minister hinted heavily at a hard Brexit

(Getty)

HSBC has predicted the pound will fall to $1.10 against the dollar and hit parity against the euro by the end of 2017, as fears of a hard Brexit intensify.

Sterling was on a rollercoaster all morning on Friday, dropping more than 6 per cent below $1.18 in a “flash crash” during Asian trading – it's biggest move since the Brexit vote in June. The currency was trading at $1.2326 at 11:44 am.

HSBC said sterling has become a political currency as investors are expressing their objection to Government policy by selling off the pound.

David Bloom, HSBC’s global head of FX, said the currency is now “de facto official opposition to the Government’s policies”.

“The argument which is still presented to us, that the UK and EU will resolve their difference and come to an amicable deal, appears a little surreal. It is becoming clear that many European countries will come to the negotiation table looking for political damage limitation rather than economic damage limitation. A lose-lose situation is the inevitable outcome,” Bloom said.

“The pound used to be a relatively simple currency that used to trade on cyclical events and data, but now it has become a political and structural currency. This is a recipe for weakness given its twin deficits,” he added.

The "flash crash" caps a terrible week for the pound.

The.“flash crash” caps a terrible week for the pound. Sterling has been under pressure, falling on worries that the UK will be prepared to leave the EU single market as part of the Brexit process so that it can impose controls on immigration.

The Bank of England confirmed it will investigate the causes behind the sharp value of the pound on Friday.

Some analysts have been speculating that a technical glitch or human error had sparked a rash of computer-driven orders.

Brexit Concerns

Show all 26

1/26Brexit Concerns

Brexit will put British patients at the “back of the queue” for vital new drugs, the Government has been warned – forcing them to wait up to two years longer A medicines regulator has raised the alarm over a likely decision to pull out of the European Medicines Agency (EMA), as well as the EU itself. ealth Secretary Jeremy Hunt dropped the bombshell , when he said he expected the UK would quit the EMA – because it is subject to rulings by the European Court of Justice.

Getty Images

One of Germany’s top banking regulators has warned that London could lose its status as “gateway to Europe” for the banking sector after Britain quits the European trading bloc. Andreas Dombret, who is an executive board member for the Bundesbank—Germany’s central bank—told a private meeting of German businesses and banks earlier this week in Frankfurt that even if banking rules were “equivalent” between the UK and the rest of the EU, that was still “miles away from [Britain having] access to the single market”, the BBC reports.

Jason Hawkes

The number of financial sector professionals in Britain and continental Europe looking for jobs in Ireland rocketed in the months after the UK voted to leave the European Union

Shutterstock

Pay packages of many FTSE 100 chief executive officers are partly tied to how well share prices are doing rather than the CEO’s performance -- and some stocks are soaring. ritish equities got a boost since the June vote because the likes of Rio Tinto, Smiths Group and WPP generate most sales abroad and earn a fortune when they convert these revenues back into the weakened pound. Sterling’s fall also made UK stocks more affordable for overseas investors.

Rex

Theresa May has said the UK "cannot possibly" remain within the European single market, as staying in it would mean "not leaving the EU at all".

Getty

Lead campaigner Gina Miller and her team outside the High Court

Getty

Raymond McCord holds up his newly issued Irish passport alongside his British passport outside the High Court in Belfast following a judges dismissal of the UK's first legal challenges to Brexit

PA wire

SDLP leader Colum Eastwood leaving the High Court in Belfast following a judges dismissal of the UK's first legal challenges to Brexit

PA wire

Migrants with luggage walk past a graffiti on a wall as they leave the 'Jungle' migrant camp, as part of a major three-day operation planned to clear the camp in Calais

Getty

Migrants leave messages on their tents in the Jungle migrant camp

Getty

The Adventist Development and Relief Agency (Adra) which distributes approximately 700 meals daily in the northern Paris camp states that it is noticing a spike in new migrant arrivals this week, potentially linked the the Calais 'jungle' camp closure - with around 1000 meals distributed today

EPA

Migrant workers pick apples at Stocks Farm in Suckley, Britain

Reuters

Many farmers across the country are voicing concerns that Brexit could be a dangerous step into the unknown for the farming industry

Getty

Bank of England governor Mark Carney who said the long-term outlook for the UK economy is positive, but growth was slowing in the wake of the Brexit vote

PA

The Dow Jones industrial average closed down over 600 points on the news with markets around the globe pluninging

Getty

Immigration officers deal with each member of the public seeking entry into the United Kingdom but on average, 10 a day are refused entry at this London airport and between 2008 and 2009, 33,100 people were detained at the airport for mainly passport irregularities

Getty

A number of global investment giants have threatened to move their European operations out of London if Brexit proves to have a negative impact on their businesses

Getty

Following the possibility of a Brexit the UK would be released from its renewable energy targets under the EU Renewable Energy Directive and from EU state aid restrictions, potentially giving the government more freedom both in the design and phasing out of renewable energy support regimes

Getty

A woman looking at a chart showing the drop in the pound (Sterling) against the US Dollar in London after Britain voted to leave the EU

Getty

Young protesters outside the Houses of Parliament in Westminster, to protest against the United Kingdom's decision to leave the EU following the referendum

Getty

Applications from Northern Ireland citizens for Irish Passports has soared to a record high after the UK Voted in favour of Leaving the EU

Getty

NFU Vice President Minette Batters with Secretary of State, Andrea Leadsome at the National Farmers Union (NFU) took machinery, produce, farmers and staff to Westminster to encourage Members of Parliament to back British farming, post Brexit

Getty

The latest reports released by the UK Cabinet Office warn that expats would lose a range of specific rights to live, to work and to access pensions, healthcare and public services. The same reports added that UK citizens abroad would not be able to assume that these rights will be guaranteed in the future

Getty

A British resident living in Spain asks questions during an informative Brexit talk by the "Brexpats in Spain" group, about Spanish legal issues to become Spanish citizens, at the town hall in Benalmadena, Spain

Reuters

The collapse of Great Britain appears to have been greatly exaggerated given the late summer crowds visiting city museums, hotels, and other important tourist attractions

Getty

The U.K. should maintain European Union regulations covering everything from working hours to chemicals until after the government sets out its plans for Brexit, said British manufacturers anxious to avoid a policy vacuum and safeguard access to their biggest export market

Getty

Other blamed a report by the Financial Times in which French president Francois Hollande had demanded a tough stance on Brexit negotiations.

Join our new commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies