Analysts see sterling in freefall as Brexit fears bite
The pound tumbled against every major currency, setting a new 31-year low versus the dollar, as concerns grew about the impact of Brexit on the UK
The pound dropped to 85 pence compared to the euro at one stage yesterday, heaping pressure on Irish exporters, but weakness against the dollar was the big news on the markets.
Companies from Goldman Sachs Group to AllianceBernstein Holding issued new, doom-laden predictions for sterling amid signs opinion is hardening on the continent toward the British government's negotiating position.
Czech Prime Minister Bohuslav Sobotka was reported to have said the European Union exit talks would be "tough", while the European Central Bank (ECB) reinforced concerns about the impact on growth in an account of its last policy meeting. UK bonds dropped, with 10-year gilt yields climbing to a three-week high.
UK Prime Minister Theresa May has hinted she wants an EU exit deal that both secures access to the single market and allows the government to control immigration. Leaders across the bloc have dismissed this as impossible, and with March now set as the deadline for triggering divorce proceedings, tensions are playing out in the currency market.
"There's been a sea change in the sterling market," said Jane Foley, a senior strategist in London at Rabobank International, which predicts a drop to $1.25 by mid-2017.
"Suddenly, with March on the horizon, we're beginning to see some of the risks associated with Brexit coming into full focus. The market is more worried now about the future than the present." The rally of the previous day seemed long forgotten as the pound slumped to $1.2622 at one stage, its lowest since 1985.
It sank 0.7pc to 88.49 pence per euro, after reaching a five-year low.
"The move in gilts is leading bond markets in general," said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London.
"The fiscal backdrop is surely set to worsen into 2017."
Sterling was spurred lower by an account of the ECB's September policy meeting, which remarked it was "too early to say" whether the anticipated hit to growth from Brexit had been "overstated".
AllianceBernstein says the pound fall 17pc to $1.05- $1.10, while Goldman Sachs sees a slide to $1.20, or beyond. (Bloomberg)