The pound was down 0.6 per cent against the dollar today as traders and their advisors steeled themselves for more Brexit turmoil.
The morning saw sterling fall by more than one per cent against the dollar to a low of $1.301 after the government’s chief legal advisor said the current Brexit deal could leave the UK locked in a backstop arrangement indefinitely. It rebounded somewhat throughout the afternoon, and was at $1.307 by six pm.
The sterling volatility came as traders, analysts and advisors readied themselves for a frantic few days in the markets.
Barclays said they will have additional staff in their London, New York and Singapore offices to trade round the clock and are treating the Brexit vote, scheduled for seven pm tonight, as a “macro event”. Their chief and senior UK economists will be on hand to advise clients.
Paul Dales, chief UK economist at Capital Economics said his consultancy had implemented a new forecasting system to better account for political uncertainty.
“It can't be captured by one line on a chart”, he said. “We’ve now gone to saying we've got three separate forecasts for the economy dependent on different Brexit outcomes, a deal, a no deal, or some kind of delay which leads to a deal.”
He said: “If there's a delay, and that delay's for two or three months, but then there's a deal, we think the pound would again rise not quite as far [as if there were a deal], maybe to $1.35 by the end of this year and $1.40 next year. If there's a no deal, we think it would fall to about 1.15 against the US dollar.”
FX strategist at Nomura Jordan Rochester said volatility in the pound due to political uncertainty has seen an increase in trading. “A lot more trades in the market have been going through in sterling", he said.
Speaking of the likely effect on the pound of the Brexit vote, he said: “We're still trading where we were just a year ago, we haven't gone anywhere, so the downside risk is still pretty capped, unless you have an election risk, resignation risk, or hard Brexit risk. Now, I think they're all quite small.”
“I've been short euro-sterling and long the pound for quite some time”, he said.