The euro struck a fresh eight-year high against the pound today as rattled investors in search of safe havens gave yet another boost to the buoyant single currency.
The pound bought as little as €1.0745, the lowest since October 2009, barring a bizarre flash crash which lasted just minutes last autumn.
Sterling has been weighed down in recent weeks by weak growth figures and moderating inflation, which have lowered expectations of a rise in interest rates this year from the Bank of England.
Slow progress so far in Brexit negotiations has also offered little reason for traders to buy the pound, according to Jeremy Cook, chief economist at forex firm World First.
“The political situation looks uncertain around Brexit,” he said. “Support for the pound is not there at the moment.”
The new low for sterling comes after an extraordinary period for the single currency as the Eurozone economy accelerates and political risks appear to dissipate.
The euro has risen steadily over the past year against most major currencies to reach levels not seen since September 2014, according to an index produced by the European Central Bank tracking the euro against a trade-weighted basket of currencies.
The euro broke through the $1.20 mark against the US dollar today for the first time since January 2015. Recent events have created a “perfect storm” of factors boosting the euro against the dollar, according to Jennifer McKeown, chief European economist at consultancy Capital Economics.
Investors today sold off riskier assets and the dollar and moved money into perceived safe havens, including the euro and gold, after a missile launch by North Korea raised fears of a renewal of geopolitical tensions.
The higher euro and the mood of risk aversion dragged back European shares. The Stoxx 600 index, tracking the largest firms in Europe, fell by more than one per cent yesterday to hit its lowest close since early February.
Dollar weakness has been further exacerbated by chaos in the White House over the summer, with investor fears building that arguments about extending US government borrowing limits, known as the debt ceiling, could lead to a spike in volatility.
Political risk in the US could make tightening monetary policy more difficult for the Federal Reserve, weakening the dollar further, according to Derek Halpenny, European head of global markets research at Japanese bank MUFG.
He said: “That risk when monetary policy is so finely balanced is something that would quickly influence the prospects of a rate hike by the end of this year.”