Sterling sank to its lowest level against the US dollar in 27 months yesterday, amid escalating anxiety over a no-deal Brexit.
The currency fell to $1.2420 soon before midday, its weakest point since April 2017. Then, in the afternoon it tumbled through the $1.24 mark. It also slipped to a fresh six-month low against the euro, at €1.107.
The development came after both Tory leadership hopefuls, Boris Johnson and Jeremy Hunt, declared that the Northern Ireland backstop is “dead”. However, sources in Brussels insist that the backstop will not be ditched, intensifying the possibility of Britain crashing out of the EU this autumn.
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That prospect seemed even more likely when an EU official told Reuters: “If the Brits really think we are so scared of a no-deal Brexit, they are being naive.”
The pound’s latest fall comes as “a blow to any families planning foreign holidays in Europe or America this summer,” The Guardian says.
The development means the pound has become the “worst-performing major currency in the world,” Metro notes.
Neil Wilson of Markets.com predicts that the tough talk about a no-deal Brexit could soften as the 31 October deadline approaches, offering the pound some support. “Both Conservative leadership candidates are taking the hard line on Brexit to appeal to the Tory membership,” he said.
“As previously stated, we have to remember that once faced with the granite reality of Number 10, recalcitrant MPs and the EU, there may be a softening.”
However, a more apocalyptic tone is adopted by Capital Economics which has estimated that sterling could slump as low as $1.15 against the US dollar after a no-deal Brexit.
By way of contrast, it adds, if the UK was to leave the EU with a deal, the pound could rally back to $1.40 within a couple of years.