Pound Set for Longest Run of Losses Since 1984 on Brexit Woesby and
Sterling is worst-performing Group-of-10 currency this year
‘Scale of work’ to be done keeps currency vulnerable: Rabobank
The pound headed for its fifth quarterly decline versus the dollar, the longest run since 1984, as the currency bears the brunt of the U.K.’s decision to leave the European Union.
Sterling is the worst performer among Group-of-10 currencies this year, having tumbled by the most on record against the greenback on June 24, when Britain’s decision to quit the world’s largest trading bloc became clear. It touched a three-decade low in early July.
The U.K. currency recovered some of its post-Brexit losses in August, when the first economic data covering the period since the referendum came in stronger than analysts forecast. It resumed the decline in recent weeks amid speculation that the country was heading for a swift exit from the EU.
“Sterling remains a very vulnerable currency given the scale of the work that needs to be done to take the U.K. from where it is now, with effectively unchanged trading relationships with Europe, to a completely new position,” said Jane Foley, a senior currency strategist at Rabobank International in London. “Over the next couple of months, the form of how complicated the talks are going to be on Brexit is going to become clearer.”
The pound fell 0.3 percent to $1.2987 as of 4:03 p.m. London time, down 2.4 percent since June 30. It dropped to a 31-year low of $1.2798 on July 6. Sterling was little changed at 86.18 pence per euro.
Traders’ angst regarding the vote started seeping into the U.K. currency after the date of the June referendum was set in February. With the result too close to call for months, the pound was jolted by surveys showing one or the other side in the lead. It remains vulnerable to abrupt changes in sentiment as Britain prepares to start implementing its divorce from the trading bloc.
Bank of England Deputy Governor Minouche Shafik said Wednesday that more easing will probably be needed after the “sizable economic shock” of the Brexit vote.
After cutting the key interest rate for the first time in seven years in August, BOE policy makers led by Governor Mark Carney have said there’s a chance of another reduction as they assess the potential longer-term fallout from Britain’s decision to leave the EU.
“It seems likely to me that further monetary stimulus will be required at some point in order to help ensure that a slowdown in economic activity doesn’t turn into something more pernicious,” Shafik said in a speech at the Bloomberg Markets Most Influential Summit in London.