Pound hits 30-month low on fresh Brexit fears and strong dollar

Tom Belger
Finance and policy reporter
The pound has fallen against the dollar, euro and other currencies. Photo: Matt Cardy/Getty Images

The pound continued to fall against the dollar on Thursday, hitting a 30-month low as the government unveiled its no-deal Brexit preparations and the dollar strengthened.

Sterling had finally rebounded slightly after days of decline on Wednesday, but then dipped briefly below $1.21, its lowest since January 2017.

The pound was still being traded at just over $1.21 at around midday in London, down 0.3% in today’s trading. It lost more than 4% of its value in July, its worst month since July 2016.

It came after the US dollar rose against other currencies, despite the Federal Reserve lowering interest rates for the first time since the financial crisis on Wednesday night.

The pound has fallen against the dollar since Boris Johnson took office.

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Investors’ faith in the dollar rose rather than fell because Federal Reserve chairman Jerome Powell also dampened expectations of future rate cuts, which US president Donald Trump has called for to stimulate the economy.

Markets were also focused on a Bank of England meeting on Thursday, with expectations it could soften its previously stated intentions for a gradual rise in rates in future.

The announcement of a £2.1bn spending plan for no-deal preparations by the UK chancellor Sajid Javid on Wednesday night may have spooked the markets further.

There are renewed worries among traders that Britain could crash out of the European Union on Oct. 31 without a trade agreement in place. Many predict pressure on the pound will continue, which could push up the price of imported goods.

READ MORE: Johnson ramps up no-deal spending with £2.1bn contingency plans

"Sterling remains vulnerable to a further escalation in Brexit tensions and we anticipate the market will likely discount higher risks of a 'no deal' outcome in the weeks ahead," said Roger Hallam, currency chief investment officer at JP Morgan Asset Management.

New UK prime minister Boris Johnson won his party’s leadership contest and pledged to leave the EU by 31 October, “no ifs, no buts.”

His new government has ratcheted up planning for a no-deal Brexit and shown few signs of willingness to strike a compromise with the EU, dashing business hopes of a deal to maintain Britain’s close ties with the EU.

Britain’s budget watchdog warned earlier in July a no-deal Brexit would send Britain into recession, with unemployment, import prices, government borrowing and trade barriers soaring while real incomes, foreign investment, and house prices crash.

READ MORE: Bank of England expected to leave rates unchanged on Thursday