Pound fall to 5-week low against euro as ‘hard Brexit” fears intensify
The pound posted sharp losses against other major currencies Monday on heightened fears that the U.K. government is heading for a so-called hard Brexit that would take the country off the single market.
Sterling GBPEUR, -0.3030% fell to the lowest level since Aug. 16 against the euro, exchanging hands at as low as €1.1472 intraday, according to FactSet data. Against the dollar GBPUSD, -0.0154% the pound slid to $1.2916, down from $1.2967 late Friday in New York.
“The recent news reports that a so called ‘hard Brexit’ seems the more likely strategy for the U.K.’s EU departure and this has had a dramatic impact on the pound, with sterling falling to a five-week low,” said Paresh Davdra, CEO at RationalFX, in a note.
The Financial Times reported on Monday that leading London bankers are growing increasingly worried that U.K. Prime Minister Theresa May will end the U.K.’s access to the EU single market and customs union. The fear is that a goodbye to those markets would erode business confidence and trigger a corporate exodus. A KPMG survey of 100 CEOs from major U.K. companies also out on Monday showed that 76% are considering moving their headquarters or some operations outside Britain because of the Brexit vote.
Concerns of a hard Brexit have started to mount recently, with Brexit minister David Davis saying its “very improbable” Britain will stay in the single market and international trade secretary Liam Fox signaling that the U.K. intends to become an independent member of the World Trade Organization.
“The issue is that [a hard Brexit] creates a greater hurdle for businesses to overcome and also the ability of U.K. firms to passport business into the EU also looks under threat,” Simon Smith, chief economist at FxPro, in a note.
“Such headlines are giving some a reason to take a more bearish stance on the currency. Since the Brexit vote, cable has seen only fleeting glimpses below the $1.30 level, so the question is whether this is going to prove to be a more sustained move. If ‘hard Brexit’ talk persists, then this recent weakness could well persist,” he added.
For the third quarter—which started just a few days after the June 23 EU referendum — the pound is on track for a 2.3% drop against the dollar and a 3.2% slide against the euro.