Possibility of disorderly Brexit dents sterling

Pound sees its sharpest daily fall in a year and a half

The British pound tumbled nearly 1.5 per cent yesterday, its sharpest fall in nearly a year and a half, as traders weighed in the possibility of a disorderly Brexit after prime minister Theresa May faced opposition from her own colleagues to support a Brexit deal.

The pound fell as much as 1.8 per cent before trading 1.69 per cent lower at $1.2772 against the dollar. Yields on German 10year bunds fell to from 0.407 to 0.35 basis points because of the safe haven demand.

“UK MPs and sterling bears alike are circling smelling blood as a no-confidence vote is likely,” Stephen Innes, Head of Trading APAC at OANDA said.

UBS expects more downside in the currency before it sees any recovery.

“The pound continues to be the main focus for the markets as the negotiations enter the final chapter. Ratification of any withdrawal agreement in the UK parliament is likely to prove challenging, and the collateral damage could be immense. This could keep sterling volatile and exposed to downside risk in the near term,” UBS said in a note.

The pound has been one of the volatile currency due to drama that led to the Brexit negotiations between the UK and the European Union. The British currency has shed more than 5 per cent in the past one year.

“The downside is quite significant for the pound if the $1.26 level breaks,” Phaneendar Bhavaraju, Managing Partner and Head Global Market Strategy at Arrow Capital DIFC said. In the equity market, the FTSE 100 index was 0.22 per cent higher at 7,049.12.