Pound sterling drops to its lowest level since October flash crash ahead of Theresa May's Brexit speech

The currency slumped to more than a three-decade low, excluding the flash crash on 7 October

Fears of the consequences of a hard Brexit have sent the pound to a fresh 31-year-low against the dollar, excluding last October’s flash crash.

The pound hit new lows after reports said that Prime Minister Theresa May will on Tuesday signal plans to quit the EU’s single market to regain control of Britain’s borders, in a speech which is expected to give the most detailed insight yet into her approach to the forthcoming negotiations with Brussels.

The Prime Minister’s office declined to comment on the reports.

Sterling fell against all of its major peers, dropping below $1.1985 against the dollar in early Asian trade on Monday, before recovering slightly to just above $1.20 at market closing time.

This is a more than three-decade low for the currency, excluding the flash crash on 7 October that sent the pound plunging more than six per cent to $1.18.

Fears among currency traders and investors that the UK is heading for a hard Brexit – in which access to the EU’s single market would be sacrificed in favour of tighter control over immigration – have tended to weaken the pound, while suggestions that the UK could retain access to the EU single market have helped it recover.

Sterling is down against the dollar by about 19 per cent since the Brexit vote, with declines since mainly sparked by concerns that Ms May would pursue a so-called hard Brexit.

City analysts are anticipating Ms May’s speech on Tuesday with a sense of gloom.

Neil Wilson, analyst at ETX Capital, said: “It’s looking more and more like a ‘hard’ Brexit is in the offing and markets are responding. The currency market is the most efficient and swiftest to price it in.

“May probably won’t give everything away and explain the government bargaining position in detail, but it looks like she will sound more hawkish and steer the tone towards a hard Brexit. The PM’s statements have a habit of hitting sterling pretty hard and today’s moves are clear signs of nervousness in the fx market.

“The PM could, however, strike a more soothing tone than markets expect and that could spark a significant short-term reversal in cable [GBP/USD exchange rate], although long-term, it’s going to be hard to shake the bears.”

Analysts at UniCredit said: “[We] believe that sterling is a sell on any potential rallies. Even in the event of a more ‘conciliatory tone’, [by Ms May hinting at seeking out a transitional agreement with the European Union, for instance] the respite on sterling is very likely to be only temporary.”

Reuters economists have forecast sterling will slump to a fresh low when the Prime Minister starts official proceedings to leave the bloc in March.