Pound sterling falls to six-year low against the euro

The pound is under pressure from fresh Brexit uncertainty

Zlata Rodionova
Monday 17 October 2016 15:52
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Sterling has come under renewed pressure, following reports of tensions at the heart of the UK Government over a Brexit strategy.

The pound has fallen below €1.10 for the first time since March 2010 during trading on Monday – a six-and-a-half-year low against the euro.

The latest currency selloff came as investors were disconcerted by claims that Chancellor Philip Hammond had angered cabinet Brexit supporters by failing to be helpful enough in pursuing the UK's withdrawal from the European Union.

Analysts' forecasts see the pound slipping lower towards the end of the year as more concrete Brexit plans could weight on its recovery.

Meanwhile, some holidaymakers at UK airports have already been offered less than €1 to the pound as sterling's value continues to plummet.

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 also fell back below the $1.22 mark against the dollar on Monday, down to $1.217 in afternoon trading.

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The pound has lost almost a fifth of its value against the dollar since the referendum in June and is the worst performing currency in the world this year. It has continued to face pressure since a so-called flash crash two weeks ago saw it take a 6 per cent hit in two minutes .

Kathleen Brooks, research director at City Index, said the pound is starting to act like an emerging market currency.

“To put this month’s fall into context, the pound is weaker against the majority of emerging market currencies, including the resurgent Mexican peso and the Malaysian ringgit,” Ms Brooks said.

“The South African rand managed to eek out a gain against the pound, even thought its finance minister was recently hit with charges of criminal misconduct,” she added.

Ms Brooks said that the risks of a break-up of the United Kingdom and further signs of tension in Downing Street over the Prime Minister’s handling of Brexit are the chief concerns of the currency market.

“Until these issues go away the pound is likely to remain the market’s favourite whipping boy,” she said.

US rating agency Standard & Poor’s warned 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.

The weaker pound has already pushed up some import costs and might feed through to consumer prices. Last week, consumer goods giant Unilever battled with Tesco after hiking its prices 10 per cent due to the pound’s fall.

However, Bank of England deputy governor Ben Broadbent said the pound’s slump since the Brexit vote is a “major shock absorber” that will help to limit damage to the economy.

Asked if the Bank would intervene if the pound weakened further, Mr Broadbent told BBC radio: “Having a flexible currency is an extremely important thing, especially in an environment when your economy is facing a shock that’s different from your trading partners.”

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