The pound has rebounded this afternoon as traders hope for a no-deal Brexit to be avoided in a parliamentary showdown and weak US data drags on the dollar.
Sterling this morning fell to lows not seen since the mid-1980s, if 2016’s “flash crash” – believed to be due to human or algorithm error – is not taken into account.
Traders were selling the currency due to the growing risk Britain could crash out of the European Union without a deal, which most think would damage the economy and lead to a further sterling sale.
Yet the pound has repaired its losses and stood 0.16 per cent higher against the dollar to buy $1.209 heading towards 5pm.
Joshua Mahony, senior market analyst at trading firm IG, said the rebound was due to Prime Minister Boris Johnson losing his majority after Tory MP dramatically defected to the Lib Dems this afternoon.
Lee said he had joined the anti-Brexit Lib Dems because the “Conservative government is aggressively pursuing a damaging Brexit in unprincipled ways”.
Mahony said: “Markets see a Boris Johnson-led no-deal Brexit as the worst-case scenario and thus treat anything that undermines that as pound positive.”
Yet David Madden, market analyst at CMC Markets, placed more emphasis on the fact that the pound was “oversold” and “overstretched” this morning. He said traders were reconsidering its value.
Madden also highlighted that US survey data for the country’s manufacturing sector gave its worst reading since early 2016. This has weighed on the dollar to the benefit of other currencies, such as sterling.
The yield on the 10-year UK government bond fell to a record low today as investors sold stocks and sterling due to trade war and Brexit worries and bought safer assets.
As investors bought the bond, its yield dropped to 0.342 per cent, its lowest point ever, before climbing slightly. Yields move inversely to prices.