Sterling continued its dramatic decline last night, crashing through key levels against both the dollar and the euro during a punishing session.
The pound lost two cents against the dollar in a matter of four hours yesterday evening, falling to a low of $1.209 after US markets opened. Sterling also plunged through the €1.10 mark against the euro, losing 1.3 per cent to touch €1.094.
The falls take sterling’s losing run into its fourth consecutive day, with the pound now down nearly eight cents against the dollar since Theresa May declared Article 50 would be triggered by the end of next March at the Tory party conference.
“The major driver is cascading market reaction to the Prime Minister’s speech last week – particularly the signals of a ‘hard Brexit’ and, to a lesser extent, the unusual attack on the Bank of England,” top Allianz economist Mohamed El-Erian told City A.M.
“Both raise questions about the structural underpinnings of the economy and its policy management, particularly trade and monetary policies. And all this at a time when Britain is running a notable current account deficit.”
The currency has been on a downwards path since it lost more than six per cent against the dollar in two minutes during a so-called flash crash in the early hours of Friday morning.
A stronger dollar following a perceived win by Hillary Clinton in the weekend's Presidential debate has also exacerbated the pound's decline.
But uncertainty over the outcome of the Brexit vote has meant some analysts expect it to fall even further, with speculators making a record number of bets on sterling falling.
Bank of England rate-setter, Michael Saunders, even said this morning he would not be "surprised" by a further depreciation, citing the UK's massive current account deficit as a cause for concern.
"The pound appeared to find some stability on Monday following the flash crash on Friday and yet it continues to drift lower," said Craig Erlam, senior market analyst at Oanda.
"While we may see it find support soon, there appears to be little faith in sterling right now due to the huge uncertainties around Brexit and therefore further turbulence likely lies ahead for the pound."
Kit Juckes, global fixed income strategist at Societe Generale, added: "In real effective terms, sterling is 10 per cent lower than it was in 1992 after leaving the Exchange Rate Mechanism (ERM) and is now weaker than it was after Lehman.
"Press comment is now shifting to embracing the positive effects of a weak pound and in due course that'll be true but any further weakness from here might simply reflect loss of confidence and be bad for UK assets (gilts, equities, house prices, you name it...) in general. The market's very short, but if sterling weakness starts to feed weakness across assets, we will have all the conditions for a classic overshoot to start."
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