The pound’s wild week

The pound hit four-month lows against the dollar last week amid another bout of political turbulence at Westminster.

949_Markets

The pound hit four-month lows against the dollar last week amid another bout of political turbulence at Westminster. Sterling fell to $1.26, its lowest level since January, before recovering slightly after Prime Minister Theresa May announced her resignation. It also fell as low as €1.133 against the euro.

May has been one of the worst months since 2016 for sterling, which has shed more than 3% as traders unwound bets that politicians would eventually agree on a Brexit deal. The pound which tends to be a "risk-on" trade has also been hit by the wider flight from risky assets as trade tensions mount, writes Katie Martin in the Financial Times, leaving many investors sitting on the sidelines.

A hard Brexit instigated by current Tory leadership favourite Boris Johnson is seen as "the worst-case scenario" by markets, says Anooja Debnath on Bloomberg. Yet traders have not quite made up their minds about Johnson's intentions, and the chance of a snap election all make the outlook even "murkier".

With the path towards a Brexit resolution no clearer than it was three years ago, the real surprise is that the rout in the pound has not been worse, says David Smith in The Sunday Times. Dean Turner of UBS thinks a no-deal would see sterling plunge to $1.15 and €0.97, while a reversal of Brexit could see a "swift rebound" to $1.58. Yet whoever becomes prime minister next will "find themselves in exactly the same position" as May, says Karen Ward of JP Morgan, hampered by Parliament's unwillingness to back a deal or to allow a no-deal.

"The last word" is with Parliament, agrees Jon Sindreu in The Wall Street Journal. "As chaotic as a Johnson-led government could be," the most likely outcome is still a customs union or another form of "soft" Brexit. For all the "gyrations", sterling is basically in the same place against the euro as it was two years ago. "The latest move likely won't mean much in the long run."

Recommended

The currencies to bet on this year
Currencies

The currencies to bet on this year

The US dollar could be set to weaken this year, while the euro, Canadian dollar and the Swiss franc could be good bets for optimistic traders.
17 Jan 2020
The pound has been trending higher against the dollar – will it last?
Sponsored

The pound has been trending higher against the dollar – will it last?

Sterling has been rising against the dollar. Dominic Frisby sets his trend lines in the charts to see where the pound is heading next.
10 Aug 2020
Turkey’s next currency crisis approaches
Currencies

Turkey’s next currency crisis approaches

The Turkish lira is down by 14% against the dollar this year and has been trading above the ₺8/€1 level for the first time in two years. 
7 Aug 2020
The US dollar is ripe for sharp depreciation
Currencies

The US dollar is ripe for sharp depreciation

The US dollar – usually considered a traditional “safe haven” refuge – suffered its worst monthly performance in nearly a decade last month as risk-av…
7 Aug 2020

Most Popular

No, the UK did not “plunge” into recession yesterday
UK Economy

No, the UK did not “plunge” into recession yesterday

That the economy took a massive hit due to Covid-19 should be news to no one, says John Stepek. The real question is what happens now.
13 Aug 2020
Inflation spiked in the US last month – is this the shape of things to come?
US Economy

Inflation spiked in the US last month – is this the shape of things to come?

Prices in the US rose much more dramatically than expected in July. Can we expect more of the same, and what does that mean for your money? John Stepe…
14 Aug 2020
The MoneyWeek Podcast: house prices, staycations, and the death of cash
House prices

The MoneyWeek Podcast: house prices, staycations, and the death of cash

John and Merryn talk about the rise in UK house prices and the fact that everybody is holidaying in the UK, plus gold's new highs, the death of cash, …
12 Aug 2020