How low can it go? Sterling falls against the dollar and the euro again

Emma Haslett
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How low can it go? The pound fell again today (Source: Getty)

If anyone thought yesterday's rise in sterling was anything more than a fluke, today convinced them otherwise: the pound fell against both the dollar and the euro in early trading.

Sterling stayed firmly below $1.22 in early trading, falling 0.3 per cent against the dollar to $1.269 - and after briefly edging closer to €1.11 in the wee hours, it later fell back to €1.1046, 0.4 per cent down.

The pound has been steadily weakening since Theresa May announced at last week's Conservative Party conference that she will trigger Article 50, which begins the Brexit process, before March.

It gets worse: yesterday the Bank of England admitted that by one measure, sterling hit its lowest-ever level on Tuesday. Its effective exchange rate index, which measures the value of the pound against every currency in the world on a trade-weighted basis, showed the pound was at its weakest since the Old Lady began measuring it in 1990.

The consequences of the pound's fall hit home this morning after a price war between Marmite maker Unilever and Tesco was made public.

"The inflationary consequences of the slide in the pound have been illustrated by the dispute between retailer Tesco and the Unilever group, which is reportedly seeking an across-the-board 10 per cent increase in prices of the hundreds of products it supplies to compensate for the exchange rate shift," said Chris Scicluna, Daiwa Capital Markets' head of economic research.

It's unlikely to just be Marmite the slide hits, though.

"Given the slide in sterling, which likely has further to go, and the need for retailers to pass on a good deal of the higher associated costs, we fully expect UK [inflation] to rise above the Bank of England's two per cent target in the second quarter of next year, and to continue to rise to above 2.5 per cent year-on-year by the end of 2017," added Scicluna.

"Given that higher inflation will erode real disposable incomes, it will also cause consumer spending to slow, accentuating the weakness in GDP likely to result from business decisions to reduce investment."

What is going on with sterling?

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