Sterling slipped to a three-month low against the US dollar on Thursday with concern over Britain’s EU divorce beginning to swell once again.
The UK currency dropped 0.41 per cent against the buck to $1.2794, a level not previously seen since mid-February. It was down around 0.2 per cent against the euro, indicating that some of Thursday’s fall was attributable to broad dollar gains.
The pound had traded as high as $1.3176 just 12 days ago, Refinitiv data show.
After a period of calm, Brexit has begun to loom large once again. Cross-party talks between the ruling Conservative party and Labour, the primary opposition, have faltered, with investors assigning little hopes of a breakthrough.
Prime minister Theresa May is expected to face calls from members of her own party to set a date for the end of her premiership. Meanwhile, polling has suggested that Nigel Farage’s Brexit party will have a strong showing in next week’s European Parliament elections.
“If the European elections in the UK produce the result some predict — with a disastrous defeat of the established parties and a spectacular victory for EU hater Nigel Farage — things are going to get interesting for Prime Minister Theresa May,” said Ulrich Leuchtmann, analyst at Commerzbank.
Mr Leuchtmann added: “It will be more than questionable whether the Tories would still be willing to enter a compromise with Labour at that stage. “No deal” will become a possibility again.”
Sven Jari Stehn, analyst at Goldman Sachs, reckons that even if the May government collapses, an orderly Brexit is the most likely outcome. The Wall Street bank sees 50-50 odds that a “close variant” of Mrs May’s UK withdrawal bill will eventually pass. It places the odds of no Brexit at 40 per cent, and no deal — widely seen as the most damaging outcome for the currency — at just 10 per cent.
“However, our conviction on the timing of resolution is low,” Mr Stehn said. “We still look for a deal in the second quarter, and Downing Street has indicated a renewed attempt in the first week of June, but we think the risks that ratification spills over into the second half of the year have risen.”