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Brexit worries keep sterling near 5-week low

Monday, September 26, 2016 - 15:41

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Sterling was weaker on Monday, trading near a five-week low, as lingering worries over Britain's exit from the European Union drove investors to sell the currency that has steadily lost ground in the past three straight weeks.

[LONDON] Sterling was weaker on Monday, trading near a five-week low, as lingering worries over Britain's exit from the European Union drove investors to sell the currency that has steadily lost ground in the past three straight weeks.

Sterling was knocked down late on Thursday after British Foreign Secretary Boris Johnson said he expected formal divorce proceedings between Britain and the EU to begin early next year, and that two years may not be needed to negotiate a deal.

It continued to fall through Friday, losing more than one per cent to touch US$1.2915 - just over a cent higher than the three-decade low of US$1.2798 that sterling hit in July, in the wake of June's shock vote for Brexit.

On Monday, it was down 0.2 per cent at US$1.2947 despite a subdued greenback. Against the euro, the pound was down 0.2 per cent at 86.72 pence, having hit a five-week low of 86.78 pence earlier in the day.

sentifi.com

Market voices on:

"The comments from Johnson around the timeframe for Article 50 to be invoked and that the Brexit negotiations do not need to take two years have had a detrimental impact on sterling," said Jameel Ahmad, chief market analyst at FXTM.

Investors worry that an exit from the single market will drag the UK into a recession and blow out Britain's ballooning current account deficit, already amongst the highest in the developed world at around 5 per cent of gross domestic product. A wider current account deficit tends to lead to a lower currency.

On Thursday, Britain will release second quarter current account deficit data and forecasts are for a slight narrowing the gap.

"The current account data may underline once again that a demand side economic rebound increases external funding risks should the supply side of the British economy weaken from here," Morgan Stanley said in a morning note.

"This may happen should Brexit talks not focus on the UK maintaining full market excess to the EU. Slower business investment tends to hit an economy with a delay given the multiple months' lag between business investment and execution."

Sterling had gained around 5 per cent from its July low as of early September, as data showed the economy holding up relatively well after the Brexit vote. But after parliament returned from its summer recess, Brexit worries have come back into investors' radar and has weighed on sentiment.

REUTERS

For more coverage of the EU referendum, visit bt.sg/BrexiT

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