Sterling slumps to new low as fears grow of no Brexit deal

Peter Hargreaves says Britain will get a free trade deal
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Jay Williams

Pound sterling is now selling off against the USA dollar and the Japanese yen, while strengthening against the Australian dollar and the euro. Three-month sterling volatility rose to its highest since March.

Sterling shed 0.3% versus the dollar to leave it at 86p, its lowest level for nearly a year.

Most recently was the UK's International Trade Secretary Liam Fox, who predicted that there is now a 60/40 chance that the United Kingdom will crash out of the European Union with no deal in place.

The news of no-deal Brexit weighs on Sterling sending it to the lowest level since August 31 past year and coupled with earlier comments of the outgoing Monetary Policy Committee (MPC) member Ian McCafferty who added to the no-deal Brexit fear in public debate together with dovish monetary policy outlook.

Christophe Barraud, an economist at Paris-based brokerage Market Securities, said: "A lot of companies can't wait for the negotiations outcome in October, so of course are trying to hedge against a drop in the pound".

"Some are thinking in the market that the BoE raised in order to given them ammunition to cut rates in the face of a no- deal", said Neil Jones, head of hedge fund FX sales at Mizuho Bank. The latter is going to be a longer term worry which means any short-term rallies in the Pound could be short-lived, as it proved to be the case after the Bank of England's rate hike last week.'Investors were also hesitant to keep selling or buying the Pound too much on Thursday, ahead of Friday's slew of key United Kingdom ecostats.

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Against the euro, the pound has held up far better as demand for dollars has kept the euro on the back foot.

Nomura strategist Jordan Rochester added: "We remain bearish on the pound in the short term until the Brexit mess is out the way".

The pound has fallen more than 10 per cent since mid-April versus the dollar.

The economic calendar for this week remains thin, with only low-tier data on the offering for Wednesday, and GBP traders will be turning their eyes to the UK's GDP reading due on Friday. The August Inflation Report projections were conditioned on the Bank rate rising from 0.5 percent before this month's meeting to 1.0 percent by Q1 2020 and then edging higher to 1.1 percent by Q3 2021.

Puts are an option to sell an asset and calls the right to buy an asset.

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