You are here
Trade-weighted sterling near record low, Brexit focus shifts to High Court
[LONDON] Sterling was near a record low in trade-weighted terms on Thursday as focus turned to the High Court which will hear a legal bid to force the British government to seek parliamentary approval to trigger the formal Brexit process.
After a steep sell-off in the last two weeks caused by uncertainty over Brexit, the pound surged as much as 1.5 per cent against the dollar and the euro on Wednesday after British Prime Minister Theresa May said she would allow lawmakers some scrutiny over the process.
Ms May had drawn the ire of many in parliament for refusing to divulge her strategy and saying she would trigger Article 50, which sets off the formal departure process, without giving lawmakers a say.
Markets were also relieved to hear her say that she would seek "maximum possible access" to Europe's single market.
But the pound gave up some of its gains later on Wednesday after May and her Brexit minister, David Davis, appeared less concessionary in parliament. Ms May also said parliament will not vote on triggering Article 50.
Traders said considerable certainty was prompting investors to stay clear of the currency.
A second hearing in the legal challenge against the government for its stance on Article 50, led by pro-EU investment fund manager, will take place at the High Court on Monday, but it is not clear when a final decision will be made.
Investors fear Brexit could hurt trade and foreign investment needed to fund Britain's huge current account deficit, one of the biggest in the developed world.
"This suggests there will be heightened uncertainty around the pound," said a spot trader at an European bank, adding that the spectre of a "hard Brexit" - where Britain leaves the EU's single market - was likely to see sterling weaken further.
Sterling was down 0.4 per cent at US$1.2160, having tumbled to US$1.2086 on Tuesday when it appeared to be heading back towards a 31-year low of US$1.1450 hit on Friday. The euro too was up 0.4 per cent at 90.50 pence On a trade-weighted basis, sterling was down 0.15 per cent at 73.7, not far from a record low of 73.383 struck on Tuesday.
Sterling has shed 18 per cent against the dollar since Britain's shock vote in June to leave the European Union.
In a sign that the drop in the pound is likely to push up inflation and hurt consumer spending, Britain's biggest retailer Tesco pulled dozens of Unilever brands from its website in a row over pricing sparked by the Brexit-induced plunge in the pound.
"The current situation is anything but stable and another slide (in the pound) would feed concerns far more than it would help the UK's competitive position," said Kit Juckes, macro strategist at Societe Generale. "And so, it's worth remaining short sterling against both the dollar and the euro."