SINGAPORE: The sterling pound struggled near a three-year low against the Singapore dollar on Wednesday (Jul 17) as markets continued to price in the growing risk of Britain crashing out of the European Union without a transition arrangement in place.
After falling 0.7 per cent against the Singapore dollar on Tuesday to as low as S$1.6832 – the lowest since S$1.6833 on Oct 14, 2016 – the sterling gained back some ground to range between 1.6849 and 1.6897 on Wednesday.
The pound had taken another hit with the possibility of a no-deal Brexit growing ever more likely as Boris Johnson and Jeremy Hunt, the two candidates to be Britain’s next prime minister, vied to outgun each other on taking a harder Brexit stance.
The contest between Johnson and Hunt “has transformed into an arms race of who is a bigger Brexiteer,” said Vasileios Gkionakis, global head of forex strategy at Lombard Odier.
With economic data also showing the UK economy struggling to gain traction, heaping more pressure on the Bank of England to ease monetary policy, investors took to the currency derivatives and futures markets to bet on more weakness.
“It is increasingly looking like there is going to be something far scarier than ghouls and ghosts on Halloween 2019: A no-deal Brexit,” said Spreadex analyst Connor Campbell.
The pound on Tuesday also slumped to a 27-month low of 1.2397 against the greenback and a six-month low against the euro at 1.1053.
The pound suffered after Johnson and Hunt said late on Monday they would not accept the so-called Northern Irish backstop element of Theresa May’s Brexit deal.
The backstop, one of Brussels’ principal demands in Brexit negotiations, is designed to prevent the return of customs and other checks on the border between EU member Ireland and British-ruled Northern Ireland.
If implemented, the UK would follow many European Union rules until arrangements are made to avert a hard border.
“The market is pricing in a higher probability of a no-deal Brexit and an increase of economic pressure … You have the perfect storm for sterling,” Gkionakis added.
UOB economist Lee Sue Ann said that she expects Brexit uncertainty to rise as the October deadline approaches.
“The EU has made clear that the Withdrawal Agreement is not up for renegotiation and there is still a significant portion of the UK parliament that is opposed to a hard or “no-deal” Brexit,” she said.
“Given that the Oct 31 deadline is fast approaching, we will not be surprised to see another delay of the Brexit deadline in order to achieve a smooth exit from the EU,” she added.