Pound Declines to Five-Week Low Amid Specter of Swift Brexitby
Sterling slides after Johnson’s comments on Article 50
Political uncertainty adds to sterling losses: Mizuho’s Jones
The pound fell to a five-week low as British foreign secretary Boris Johnson boosted concern that the U.K. is heading for a swift exit from the European Union.
Sterling weakened versus all except one of its 16 major peers after Johnson told Sky News on Thursday that the U.K. plans to trigger the Article 50 process in early 2017 and suggested the country’s exit from the bloc could take less than two years. The timeframe is the clearest yet given in public by a member of Prime Minister Theresa May’s government, which previously limited itself to saying Britain wouldn’t invoke Article 50 of the Lisbon Treaty this year.
The timing of Britain’s exit has become a focal point for investors trying to gauge the longer-term implications of the referendum, with accelerated negotiations likely to stoke more short-term volatility in the currency. Sterling is already down about 13 percent against the dollar since Britain voted to quit the EU in June, and is the worst-performing major currency in 2016.
“You can put it down to a political uncertainty surrounding Brexit,” said Neil Jones, head of hedge fund sales at Mizuho Bank Ltd. in London. “Currencies are notoriously sold off whenever there’s an element of uncertainty, almost regardless of what the uncertainty is related to. This hard Brexit or soft Brexit or no Brexit, that unknown quantity is why sterling is being sold.”
The pound fell 0.9 percent to $1.2964 as of 4:25 p.m. London time, after touching $1.2915, the lowest since Aug. 16. Sterling weakened 1 percent to 86.59 pence per euro.
The U.K. currency has underperformed all but one of its Group-of-10 peers this week, and losses may continue, according to Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt.
“Political uncertainty is going to be a big driver in the next couple of months,” she said. “When exactly is the British government going to trigger Article 50? That is still a sensitive point for many market participants.”
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