Pound sterling could lose its reserve currency status as Brexit hardens, Standard & Poor’s warns

Standard & Poor’s stripped Britain of its AAA status immediately after the Brexit vote in June

Zlata Rodionova
Friday 14 October 2016 10:17
Comments

The pound might fall out of the International Monetary Fund’s elite basket of reserve currencies if the UK fails to secure full access to the single market as it prepares to negotiate its way out of the EU, US rating agency Standard & Poor’s has warned.

Standard & Poor’s stripped Britain of its AAA status immediately after the Brexit vote in June, saying the leave result would "weaken the predictability, stability, and effectiveness of policymaking in the UK".

Ravi Bhatia, S&P’s director of sovereign ratings for Britain, said a “hard Brexit” settlement could jeorpardise sterling position as an international reserve currency.

How the pound has struggled since Brexit

He told the Telegraph: “To be a reserve currency means that the world has trust in you and is happy to hold its savings in your currency. It creates a pool of available capital. If you lose this and sterling becomes just another currency, a key advantage is lost.”

Bhatia also suggested the Government appeared insouciant about the consequences of a so called hard Brexit.

“There seems to be this view that ‘we’re a big important economy, the Europeans export a lot to us, so they have got to give us what we want’, but is that really true?”

“Individually most of these countries don’t export that much to the UK, and were seeing a hardening of attitudes,” he said.

S&P’s warning came as the pound fell below $1.22 against the dollar in early trading on Friday pushed down by comments from the President of the European Council Donald Tusk and the French finance minister Michel Sapin.

Tusk Warns UK There Can Be No Single Market 'A La Carte’

Tusk said Britain's only real alternative to a "hard Brexit" is "no Brexit" on Wednesday.

He said there could be "no compromises" on retaining benefits such as access to the single market and customs union, while rejecting the free movement of people

Meanwhile, Sapin said that some US banks are already looking to move their operations out of London in favour of the continent.

It recovered slightly from its losses hoverinf around $1.22 at noon.

Connor Campbell, financial analyst at Spreadex said: "Unsurprisingly this kind of rhetoric hasn’t been welcomed by the pound, which has fallen half a percent against the dollar and 0.1 per cent against the euro," he said.

"While this keeps sterling above the week’s - and, indeed, decades’ - lows, that fact will provide mere crumbs of comfort for the currency," he added.

Sterling is close to a historic new low on a ‘trade-weighted basis’, as global markets assess Britain’s prospects out of the EU.

Against the dollar sterling remains more than 17 per cent lower than on 23 June.

Bank of England policymaker Michael Saunders said on Tuesday he would not be surprised if the pound fell further.

Michael Hewson of CMC Markets said that trying to find a natural level for sterling is going to be difficult in the short term.

Hewson said: “Due to the amount of political uncertainty being generated on both sides of the Channel, as both sides dance on the edge of the volcano, in laying out their negotiating positions, which for now appear a long way apart.”

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Please enter a valid email
Please enter a valid email
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Please enter your first name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
Please enter your last name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
You must be over 18 years old to register
You must be over 18 years old to register
Opt-out-policy
You can opt-out at any time by signing in to your account to manage your preferences. Each email has a link to unsubscribe.

By clicking ‘Create my account’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Join our new commenting forum

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

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in