Sterling fell to fresh multi-month lows on Wednesday as Theresa May’s final gamble to force her Brexit deal through parliament met a wall of opposition.
The pound fell 0.5 per cent on the day to trade around $1.2650, its lowest level since early January. The currency had briefly rallied on Tuesday as the prime minister offered MPs a “new deal” including the possibility of a second referendum if they back the withdrawal bill at the fourth time of asking.
But Mrs May’s cross-party gambit has only hardened Eurosceptic Conservative opposition to the deal, while Labour leader Jeremy Corbyn has indicated his party would oppose the plan.
Sterling extended its losses as there was little evidence of support for Mrs May’s plan at Prime Minister’s Questions. “Her time is up,” said the Scottish National party’s Westminster leader Ian Blackford.
Earlier, Boris Johnson, a Conservative leadership candidate who backed the deal at its most recent failure, said he would not vote for a bill “directly against our manifesto”, while Labour’s Margaret Beckett said her party would “reject this hotchpotch offer”, illustrating the opposition Mrs May faces from both sides of the Brexit divide.
Derek Halpenny, head of global market research at MUFG called the prospect of Mrs May “breathing new life” into her deal on the terms of Brexit “negligible”.
“We therefore concur with the fresh slide in the pound from the highs reached just prior to the statement as there now appears a growing risk that a fall away in Conservative support on a fresh vote would not be compensated by increased Labour Party support,” he said.
Sterling is the worst-performing developed market currency against the US dollar this month, and had been under wider selling pressure as opinion polls suggest Nigel Farage’s Brexit Party is on course for a strong showing in this week’s European election and amid broad dollar strength. Analysts said the UK government’s stance on Brexit could harden if the party advocating a hard split from the EU does well in the elections tomorrow.
Sterling was trading 0.5 per cent lower against the euro, with one British pound fetching €1.1328, and on track to weaken against the single currency for 13 sessions in a row, its longest losing streak since the euro was adopted in 1999.
Corporate activity in the foreign exchange market has “kicked into life in recent weeks” as the pound’s weakness becomes “impossible to ignore for importers” who are growing increasingly concerned about their hedges, Jonathan Pryor, head of FX sales at Investec, said.
“Throughout the whirlwind of Brexit news in earlier parts of the year, the pound remained relatively rangebound against the dollar. Corporates have underestimated the fragility of sterling until we reach a resolution,” he said.
There was also demand for the relative safety of UK sovereign debt as the political uncertainty grew.
That sent the yield on benchmark 10-year UK debt back down toward the month-lows touched last week. Its 3.4 basis point drop to 1.051 per cent stood out, as wider European debt yields held steady.
The demand for gilts also pushed yields lower on debt of a range of maturities. Five-year gilt yields fell 3.3 bps to 0.808 per cent, with the two-year yield down 2.9 bps to 0.714 per cent.
