(March 12, 2017) The pound has continued to fall last week, resuming a trend that started over a week ago as Brexit fears amongst other things begin to rattle investors.
The British currency has now lost over 2.5 percent against its US counterpart in the past 5 trading sessions bringing it to a seven week low with analysts predicting there is still more pain to come.
The real problems for the pound began earlier in the week, when the House of Lords overwhelmingly voted to amend the Brexit bill to guarantee the rights of EU citizens, which means it now has to go back to the House of Commons for another vote.
The move caught the market completely off guard, as a new round of Brexit uncertainty swept the financial markets, and had investors exiting the pound in droves.
Analysts from Deutsche bank predict this is only the beginning and say the pound could fall another 16 percent before finding a bottom.
“The UK is one market where we have stronger views in terms of where currencies are going, being negative on the pound is one of our strongest views.” noted George Saravelos Deutsche’s global co-head of FX research,
“Even though intentions are quite positive on both sides, we’re very concerned about the lack of time to complete a deal in two years, and we worry that negotiations will get stuck around this issue of the payment which the UK has to make to leave the EU, and things will stall quite quickly. We’re looking for a move below $1.10, to $1.08 or $1.05, and the drivers are on the one hand they’re political, and as I mentioned, the market will worry that we’ll get a ‘cliff Brexit’ and that we won’t have enough time to reach this incredibly complicated agreement within two years.” Mr Saravelos added.
More pressure was place on the pound after the release of PMI Markit data which fell to 53.3 in February, down from 54.5 in January, and below analysts expectations for a figure of 54.1 and marking the lowest figure since September.
“The purchasing managers’ survey showing services activity slowing to a 5-month low in February with new orders muted fuels suspicion that the UK’s economy since last June’s Brexit vote is beginning to crumble and an expected slowdown is now materializing” noted Howard Archer, at IHS.