Sterling Sags as Election Speculation Sends Pound Near 34 Year Lows

3 September 2019, 13: 57
© Reuters.

As the euro fell to 27 months lows on Monday, today was the pound’s turn to endure considerable losses.


GBP/USD reached lows not seen since October 2016, as it dropped more than 0.7% against the dollar. The fluctuations are reminiscent of levels not seen since 1985.


The pound was pulled lower following reports that Boris Johnson could call an election as early as tomorrow.


The U.K. heading to the polls for another snap election no longer seems so far fetched. Political divides are growing wider with rebel Conservatives looking to join forces with the opposition Labour Party. The opposition will take control of the parliamentary agenda on Tuesday with the intention of passing legislation to prevent a hard Brexit on 31 October.


Should this occur, according to Reuters, a general election could take place as early as 14 October.


PM Johnson has stated that under no circumstances will he seek an extension to Britain’s departure from the European Union. In fact, the PM’s prorogation of parliament from Sept. 9 until Oct. 14 has been heavily criticised as a move to prevent parliament from implementing necessary legislation to block a no deal Brexit.


Director of investment for Fixed Incomes for Fidelity International Andrea Iannelli underlined other factors which could aggravate the pound, such as the Bank of England cutting rates.


“Until now, the pound has been at the main casualty of fears of the UK leaving the EU without a deal. From the referendum to leave the EU in June 2016, the pound’s trade weighted index has fallen by 16%. Only since March this year, it has fallen 7.4% after the possibility of a hard Brexit moved from being a substantial risk under Theresa May’s administration to being the baseline scenario of the current government. In a worsening of the political climate, the pound will continue to fall”, underlined Iannelli.


With respect to EUR/GBP, experts in Bankinter said: “Despite the turbulence caused by Boris Johnson last week, the pound has remained relatively stable (it even saw some increases). For this week, we do not expect much news flow on the Brexit front, so we believe we could see a certain lateral range”.



London endures the storm



As per usual in these instances, the main London index held its composure. The FTSE 100 posted moderate losses of 0.11%, seemingly unaffected by the threat of an election.


The main UK index sat at 7,272 points, with Ferguson and NMC Health leading the gains for the day.