Sterling has fallen today as ministers announced their resignations from government rather than serve under Boris Johnson, who could force a no-deal Brexit on 31 October.
Traders see a no-deal outcome as increasingly likely, leading them to raise their bets against the pound, which had fallen by 0.2 per cent against the dollar to $1.248 by 3.30pm UK time.
Foreign office minister and remainer Sir Alan Duncan resigned today in anticipation of Johnson becoming PM, which he looks set to do after the results of the Tory leadership race are announced tomorrow.
Duncan followed chancellor Philip Hammond and justice secretary David Gauke in announcing their resignations. Hammond and Gauke said they would quit before Johnson had the chance to sack them as they could not support a no-deal Brexit.
Sterling hit $1.246 today before recovering slightly. It slipped to a two-year low of below $1.24 last week when Johnson and Jeremy Hunt, his rival in the leadership contest, both pledged to scrap a key part of the deal outgoing Prime Minister Theresa May reached with the EU.
Brussels has insisted that the Irish backstop part of the agreement, which avoids a hard border on the island of Ireland, is non-negotiable.
It has said it will not reopen the so-called withdrawal agreement thrashed out with May, increasing the chances of a no-deal Brexit.
Macro strategist Kit Juckes of Societe Generale said: “There isn't a case for buying sterling here.” He said “sterling shorts have grown” as a no-deal exit becomes more likely.
David Cheetham, chief market analyst at online trader XTB, said Johnson’s intention to leave on 31 October with or without a deal is “proving very divisive and will likely mean that he will fill the new cabinet with yes-men who are hard Brexiteers”.
Yet he said the market may be “overly pessimistic given that Boris is more a political opportunist than a deeply ideological supporter of Brexit and therefore could well soften his stance once he is inside Number 10”.
Craig Erlam, senior market analyst at foreign exchange firm Oanda, said the market has priced in Johnson becoming PM, meaning “sterling may see some reprieve in the coming weeks” as some certainty emerges.
“Although, the closer we get to 31 October, if no-deal looks likely, any gains may quickly unravel.”