Sterling slides to 90p against euro on prospects of Brexit Halloween fright
Sterling tumbled against the dollar and slid to a six-month low of under 90 pence against the euro as fears over a Halloween exit for Britain from the EU haunted investors.
Some Irish shares exposed to sterling earnings in Britain were also hit, with Bank of Ireland edging lower.
The Ftse-100 many of whose constituents are international firms which benefit from a weakened sterling rose by 0.6% Both Tory contenders for the British leadership, Boris Johnson and Jeremy Hunt, have stepped up their hardline Brexit rhetoric over the open border here in the closing stage of their campaigns.
The new Conservative leader is expected to be announced next Tuesday, on July 23.
“The decline of the pound has been the core driver of Ftse upside, with the threat of a no-deal Brexit becoming clearer than ever,” said Joshua Mahony, senior market analyst at online broker IG.
“With both Hunt and Boris citing the need to scrap the backstop entirely, they both ruled out one of the only obvious routes to a deal before the October deadline.
“With the UK economic picture declining, the chance of a no-deal Brexit on the rise, and the BoE (Bank of England) expected to cut rates in such an event, it is not surprising we are seeing this kind of selling for the pound,” he said.
Sterling sank to a 27-month low at one stage against the dollar, to below $1.24.
Economists at Capital Economics said that UK interest rates will likely increase in time no matter which version of Brexit the UK opts for.
“If there is a Brexit deal or a delay, then [UK] interest rates may rise next year. If there’s a no-deal Brexit, rates would be cut first,” the consultancy predicted.
Investors scrambled to digest the views of Mr Johnson and Mr Hunt over the border and appeared to be leading markets to price a sharply higher risk of Britain leaving the EU on October 31 without any transition trading agreements in place.
Reimposing a hard border would likely devastate large swathes of the economy from north County Cork through the midlands and up through the entire North, multiple reports from the Government and think-tanks have warned.
In turn, the Bank of England would likely be forced to cut interest rates to stave off a UK economic catastrophe.
The pound suffered its biggest one-day fall since March after the Tory Party contenders said late on Monday they would not accept the so-called Irish backstop element of Theresa May’s Brexit deal.
Both are trying to appeal to the majority of the Conservative Party members who want to make a clean break with the EU.
Mr Johnson further stoked no-deal Brexit fears by vowing to send MPs home for up to two weeks in October if he becomes prime minister, though sterling weakness was exacerbated by a bounce in the dollar following strong US retail sales data.
The contest between Mr Johnson and Mr Hunt “has transformed into an arms race of who is a bigger Brexiteer”, said Vasileios Gkionakis, global head of forex strategy at Lombard Odier.
“The market is pricing in a higher probability of a no-deal Brexit and an increase of economic pressure...You have the perfect storm for sterling,” Mr Gkionakis added.
