British Pound Rates Reach Final Levels of Regular Trading in Mid-2017

The British currency fell on Tuesday to its lowest level regularly negotiated more than two years ago, in a context of persistent uncertainty about Brexit and growing economic concerns.

The pound fell 0.4% to $ 1.246 on Tuesday. This was the lowest point for the currency since April 2017, with the exception of a "flashback" that occurred in January. The pound also fell Tuesday against the euro, leaving it at € 1,123.

Boris Johnson, the favorite in the battle to replace Theresa May as Conservative leader and prime minister, said Britain should separate from the EU on Oct. 31 "come what may." His uncompromising approach has raised serious concerns about the prospect of a potentially damaging Brexit. Jeremy Hunt, the other competitor in the leadership fight, was also forced to take a similar tactic.

Vasileios Gkionakis, Head of Foreign Exchange Strategy at the Lombard Odier Bank, said the competition between MM. Hunt and Johnson aimed to determine "who can be the biggest Brexiter of all," which did not help the sentiment on the pound.

Moody's, the rating agency, warned last week that a pending divorce could trigger a recession in the UK. A series of weak data has raised fears of a possible contraction in the UK economy in the second quarter, with a first estimate of GDP to be released on Wednesday.

"Barring a significant positive surprise, tomorrow's data should confirm that the economy is expected to contract for the second quarter," said Dean Turner, UK economist at UBS Global Wealth Management.

Lee Hardman, currency badyst at MUFG, said the drop below US $ 1.25 could "open the door to a new potential test of the lows of the end of 2016 and early 2017 at a level close to the level of $ 1.20 as we approach the fall. "

"At this stage, it is difficult to see a potential trigger that could result in a lasting reversal of the current bearish trend of the pound sterling," he said. Mr. Gkionakis agreed that the pound could move towards $ 1.20 with "political rhetoric around a Brexit without agreement [expected] to intensify in the summer. "

Mr Hardman added that "the UK's economic fundamentals have weakened considerably in recent months" and that the Bank of England has indicated that it could "adopt a more accommodating tone at their next meeting policy in August ".

The markets now predict a probability of about 40% that the Bank of England will reduce its key rate by the end of this year, according to Bloomberg data on overnight index swaps. While other major central banks are also expected to ease their monetary policy, rising expectations of BoE cuts have eliminated another potential support for the currency, badysts said.

"There is a good chance that the slowdown in the economy will slow down the BoE. BoE Governor Mark Carney has already said that the economy is slowing and that the Bank should reduce its Brexit number, "added Sebastien Galy, senior macro strategist at Nordea Asset Management.

As a sign of anxiety in some corners of the market, hedge funds bet last week on a 1.2 to 2 billion dollar fall in sterling, according to Goldman Sachs calculations based on data from the US Commodity Futures Trading Commission. The report covers the futures market, which provides a useful indicator of activity on the vast global currency market.

The fall of Sterling on Tuesday helped Britain's FTSE 100 outperform its counterparts in continental Europe, registering a narrower 0.2% decline versus a 0.7% drop for the international Stoxx 600. The main London stock index hosts a range of multinationals benefiting from a pound sterling when foreign exchange earnings are repatriated in pounds sterling.