UK pound below $1.29 for first time in almost a year

The pound suffered a fresh fall on Wednesday, knocking it to the lowest level in almost a year against the dollar amid persistent worries about UK prime minister Theresa May’s ability to cut a deal with the Europe over Brexit.

Sterling fell as much as 0.6 per cent to $1.2863, taking the drop in the currency since the start of the week to 1.2 per cent. It had not previously broken below $1.29 since August 31, 2017, according to Reuters data.

Britain’s currency also struck its lowest level of the year against the euro, with the signle currency worth as much as 90 pence for the first time since Octoober.

The euro-pound rate has been relatively stable this year. But sterling has fallen 1.4 per cent against the euro in the last five trading days as fears about the UK failing to reach agreement with the EU increased, underscoring how Brexit is weakening sentiment towards the pound.

After last week’s muted response to the Bank of England rate rise, market attention continues to be focused on uncertainty in UK politics, although traders are next looking forward to Friday‘s GDP data for signals over the health of the British economy.

Sterling bulls awaiting that data were having to endure “quite a lot of pain,” said Ulrich Leuchtmann, analyst at Commerzbank. “The re-focusing of the market on the subject of Brexit continues,” he said. “And of course that spells trouble for the UK currency.”

In another sign of the rising concern, expectations for volatility in sterling over the next three months have risen to the highest level since late February, according to Bloomberg data tracking implied volatility in the options market.

The latest leg of the bearish view on Brexit was triggered at the weekend when trade secretary Liam Fox warned there was a 60 per cent chance the UK would break away from the EU next March with no trade deal in place. With little in the way of other news and macroeconomic events, this caution has overhung the market this week.

Derek Halpenny, forex analyst at MUFG, who has generally adopted a bullish sterling view this year, said he was less optimistic about a UK-EU deal than a month ago. “But I still don’t think we will get a cliff-edge drop,” he said.

Alberto Gallo of Algebris Investments said the second half of the year was likely to see investors question “the UK government’s unclear approach to Brexit as well its lack of a growth strategy for Britain”.

Sterling is down 2.3 per cent on the dollar this quarter and has tumbled 10.3 per cent from the recent high of $1.4376 set in April.

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