Sterling racks up record slide... but it's only going to get worse - THE TELEGRAPH
After a 10th day of decline, we asked three of the City's top currency analysts on what investors should brace for next
BY Tom Rees
The pound is on course to rack up a record 10th day of declineversus the euro as the City frets over the rising risk of a no deal Brexit or a general election that propels Jeremy Corbyn to power.
While Tory hopefuls are gearing up for a hotly-contested leadership race, currency traders are already gazing into their crystal balls hoping to predict whether sterling will sink or surge in the coming months.
Investors fear that Theresa May’s exit could trigger a chain reaction of events that send the pound sliding back to the three-decade lows hit in early 2017. We asked three of the City's top currency analysts on what investors should brace for next.
'The only positive would be in indicative votes'
Indicative votes are the only market positive I can see in the next few days and weeks. Now we are all talking about who will replace Theresa May.
What does the contest mean for the pound? You have to say the pound would fall lower for any leadership candidate apart from anyone who is a Remainer. But a Remainer is unlikely to be leader.
If you had a Boris Johnson leadership going forward, it’s not clear what he would do. He wants a super Canada Brexit so rather than going for a hard Brexit, it seems more likely that he will try to reopen the negotiation. But the EU has said they will not do that.
So the market will price in a higher chance of an accidental no-deal Brexit or a general election. The only positive could come from indicative votes finding a majority for something.
We could be trading at $1.25 when Theresa May resigns and from there it depends on who gets through.
'$1.20 to the pound is very feasible'
We started a while back to think forward on domestic political scenarios and you run out of time relatively quickly when you incorporate a leadership election. I certainly think that in recent days what has become clear is that with cross-party talks going nowhere, you’re in a situation where you are looking more and more at a possible general election.
If you get clarity on who wins a leadership election, like Boris Johnson, a general election becomes more plausible.
Based on a simple scenario where Boris Johnson becomes prime minister, the prospects of the markets pricing in a no-deal Brexit are considerably higher. I think in between now and October with Boris Johnson a fall in sterling to the low $1.20 region against the dollar is very feasible. A lot of the scenarios move you to the no deal risks coming back into play.
'No longer going to see a soft Brexit twist'
Simon Harvey - foreign exchange market analyst at Monex Europe
In the run-up to a possible general election, it doesn’t look good for the pound.
If Boris Johnson is brought in as leader, you have got to look around at sterling’s recent lows purely for the fact that a no-deal exit becomes more probable than previously.
At the moment, it is a case of how much further can the pound go down, we’re looking at $1.25 in the run-up to the Withdrawal Agreement vote and whether that support level will hold up. You would like to think it would stay around that $1.25 to $1.27 mark unless the political environment takes a real turn for the worst.
The departure of Theresa May is now priced in, the value of the pound suggests we are no longer going to see that soft Brexit twist.
Sterling is the best bellwether of Brexit and UK politics in financial markets. The political environment is bleak, and shows no sign of appeasing, meaning the pound may fall further in the near-term.