British £ falls lower against dollar, euro against no-deal Brexit fear

389
A bank employee counts pound notes at Kasikornbank in Bangkok, Thailand October 12, 2010. REUTERS/Sukree Sukplang/File Photo

LONDON, Aug. 9 (Xinhua) — The British pound has slumped to its lowest level against the U.S. dollar and the euro this year on mounting worries that Britain will leave the European Union without a trade deal.

Analysts said Thursday that a weaker pound would lead to a higher inflation rate and poorer life quality in the country.

The pound fell below 1.29 U.S. dollars on Wednesday for the first time in almost a year. Sterling also hit a nine-month low against the euro, and was down against the yen and Swiss franc.

The falls took place despite a rise in UK interest rates, which usually pushes up the value of sterling.

Sterling was down heavily against all major currencies as investors sought to insure themselves against the growing possibility of a breakdown in Brexit talks between London and Brussels in the coming months.

Analysts said that sterling slide, which makes imported goods and foreign travel more expensive but UK exports cheaper, would push up inflation and lead to a renewed squeeze on living standards at a time when support for the British government’s handling of Brexit has fallen sharply.

Since the beginning of the month, the pound has fallen 1.7 percent against the U.S. dollar and 0.8 percent against the euro.

Holidaymakers have already seen an impact from the weaker pound. The walk-up rate at Forexchange breaux de change in Cardiff airport on Wednesday dropped to 0.90 euros to one pound, with 200 pounds buying just 177 euros.

Speculation against the pound has intensified over the past week as markets have digested warnings from Bank of England governor Mark Carney and the British international trade secretary, Liam Fox.

Carney said on Friday the chances of a no-deal Brexit were “uncomfortably high”. On Sunday, Fox put the odds at “certainly not much more than 60-40”.

Although the British government has insisted it still expects negotiations with the EU over the next few months to prove successful, currency traders have not been prepared for a deal to emerge and are now hedging against the possibility of the hardest possible Brexit.

With less than eight months to go before Britain’s planned date of departure from the European Union, financial markets have now started to take seriously the chances of chaos at the borders and damage to supply chains.

The FTSE 100 benefited from the weak pound on Wednesday, finishing the day up 0.4 percent.

However, on Thursday, analysts noted that a dip in sterling was not enough to keep the index up, and it fell 0.6 percent in morning trading.

They said that the decision last week by the Bank of England to push official interest rates above 0.5 percent for the first time in almost a decade had failed to support the pound.

But they also said that the U.S. investment bank, Morgan Stanley, said that they expected the pound’s weakness to be temporary.

SHARE