Photographer: Chris Ratcliffe/Bloomberg

Brexit-Battered Pound Emerges as Favored Short Before Fed

  • EU leaders warn U.K. of consequences of leaving bloc
  • Sterling is the day’s worst performer among G-10 currencies

The pound fell to a one-month low as European Union leaders hardened their rhetoric over the consequences for Britain of leaving the trading bloc.

Sterling was the worst performer among its Group-of-10 peers after Czech State Secretary for EU Affairs Tomas Prouza said late Monday that the U.K. has “zero chance” of clinching an exit deal with both immigration curbs and free-market access. He’s the latest in a string of central and eastern European leaders to issue such warnings to Britain in the hope of maintaining their citizens’ ability to work in the country.

The U.K. currency was also undermined as traders used it as a way of betting on the Federal Reserve striking a hawkish tone when it announces its policy decision on Wednesday, according to Petr Krpata a foreign-exchange strategist at ING Groep NV.

“The seemingly tough position from CEE countries on the terms of Brexit, namely the migration issue,” together with the lack of certainty over when the U.K. will trigger the formal exit process, is hurting the pound, said London-based Krpata. Also, sterling “could be a good vehicle to position for a potential hawkish surprise from the Fed,” in which case it may decline to $1.28, he said.

The pound dropped 0.5 percent to $1.2967 as of 4:55 p.m. London time, after touching the lowest level since Aug. 16. Sterling fell for the past two weeks versus the dollar, after a three-week winning run. Britain’s currency slipped 0.5 percent to 86.16 pence per euro, also reaching the weakest in about a month.

While the futures markets are pricing in a roughly one-in-five chance of a Fed hike this week, two of the central bank’s own primary dealers -- Barclays Plc and BNP Paribas SA -- have broken with the consensus to forecast a move.

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