The pound has fallen to its weakest level against the US dollar since 2016 as investors brace themselves for a crucial day in parliament.
Sterling dropped as much as 0.62 per cent in early London dealings to $1.197, the weakest level since a flash crash in October 2016, Refinitiv data show. It also weakened by 0.5 per cent against the euro to €1.0949.
Rebel MPs are expected later on Tuesday to attempt to seize control of the parliamentary agenda in an effort to force Boris Johnson to seek a Brexit extension in mid-October if he is unable to strike a deal with Brussels. The prime minister has in turn threatened to call a snap election if that legislation succeeds.
There are “innumerable” potential scenarios that can results from Tuesday’s vote and a potential election follow, said Antje Praefcke, analyst at Commerzbank. “As a result uncertainty is high and volatility continues to rocket.”
She said that the pound could “ease sustainably” below the $1.20 level, with further losses also expected in the pound-euro cross.
Charlotte Chan, portfolio strategist at Fidelity International, added: “Sterling has dropped since March, after a hard Brexit shifted from being a tail risk under the Theresa May administration to becoming the base case under the current government. It could fall further if the political climate worsens.”
A group of MPs, including Conservatives led by former chancellor Philip Hammond, and members of the Labour party are poised to move this afternoon to try to take control of the House of Commons order paper. If they succeed, they will look to force Mr Johnson to seek an extension to Brexit to January, from October 31 currently, if he is unable to strike a deal with EU negotiators.
The prime minister’s allies believe the vote on Tuesday will be “tight”.
Mr Johnson addressed the UK on Monday afternoon, saying that if such a measure passed it would “chop the legs out” of his government’s negotiations. He has threatened to call a general election on October 14 if the legislation passes.
“I want everybody to know there are no circumstances in which I will ask Brussels to delay,” he in a statement after an emergency cabinet meeting on Monday. Speaking over the chants of protesters, the prime minister added: “We are leaving on October 31, no ifs or buts.”