Sterling has weakened more than one percent this month as deadlocked cross-party talks continue to expose deep political divisions over Britain leaving the European Union. The pound fell sharply today as growing expectations that Prime Minister Theresa May will again fail to get her Brexit deal approved spooked traders. As of 3.20pm BTS, Sterling was at €1.1452, having dropped half a percent from opening levels and making the pound one of the worst performers among Group-of-10 currencies in the past week. Bloomberg analysis reports sentiment around the pound is turning negative today, with currency experts keeping a firm eye on political movements.
The pound has been shorted by BlueBay Asset Management LLP, while long-term pound bull Nomura International Plc has ended its buy recommendation on Sterling.
Michael Brown, senior analyst at Caxton FX, said Sterling has become less appealing due to lack of Brexit updates.
He said: “Sterling has fallen to a one-month low this afternoon as a combination of a lack of Brexit progress and a deterioration in risk appetite make the pound less attractive.
“With an absence of major economic releases for the remainder of the week, focus remains on political developments in Westminster, with the likely collapse of cross-party talks a potential catalyst for further downside moves.”
Meanwhile, Sebastien Clements, currency analyst at OFX, is expecting more twists and turns for Sterling as Brexit continues to unfold.
Previously exchange rate analysts have suggested the pound could rise if Britain should reach a deal with the European Union.
For now, Mr Clements says the pound is “currently in limbo”.
He said: “Market sentiment is always a key determinant in how well a currency performs.
“Eighteen months of negative Brexit headlines has left Sterling undervalued by investors and at the mercy of ongoing cross-party talks between Prime Minister, Theresa May, and Jeremy Corbyn’s Labour Party.
“This is the situation we find ourselves in as we approach the European Parliamentary Elections.”
Mrs May is planning to put forward her three—times rejected Brexit deal in the week beginning June 3, 2019.
But the Labour Party has warned it would not endorse a deal if a compromise agreement is not reached with the Government.
Those comments fuelled speculation that Mrs May will soon be ousted, pressuring the pound.
Petr Krpata, an FX strategist at ING, said: “Failure to pass the deal [in June] could well see May finally step down, opening the door for a more eurosceptic prime minister and a possible hard Brexit,” said
Sterling has fallen for eight consecutive days against the US dollar despite mostly solid economic data in Britain in recent months.
A worry for investors is that months of inventory stockpiling by British companies before Brexit will show up this quarter.