Pound Takes a Drubbing

Sterling slid to three-month lows in Asia on Monday with investors again spooked by concern over Britain’s exit from the EU, while US policy uncertainty lingered ahead of president-elect Donald Trump’s inauguration.

Regional share markets were hesitant with MSCI’s broadest index of Asia-Pacific shares outside Japan up just 0.09%. Japan’s Nikkei eased 0.3%, while Australia added 0.5%. All the early action was in currencies where the pound sank as low as $1.198, depths not seen since the flash crash of October, having finished around $1.2175 in New York on Friday. It was last down 1.1% at $1.204, Businesslive reported.

Dealers said the market was reacting in part to a report in the Sunday Times that Prime Minister Theresa May would use a speech on Tuesday to signal plans for a “hard Brexit”, quitting the EU’s single market to regain control of Britain’s borders.

Investors have been worried such a decisive break from the single market would hurt British exports and drive foreign investment out of the country.

“It is impossible to say by how much a hard Brexit could weaken (the pound), but we do not believe that a further 5%-10% depreciation should be regarded as an extreme scenario when set aside the UK’s high dependence on foreign capital,” wrote analysts at JPMorgan in a note.

The flight from sterling benefited the safe-haven Japanese yen, with the pound down 1.3% to ¥137.57 while the US dollar dipped to ¥114.24.

Trading was erratic with currencies gyrating on very little volume. The dollar edged up 0.2% to 101.390 on a basket of currencies, while the euro pared initial losses to stand at $1.063.