The pound was trading at two-year lows against the dollar today as investors become increasingly gloomy about the UK economy’s second-quarter performance.
Sterling had fallen 0.5 per cent by 4.30pm UK time to buy $1.246, a price not traded at since mid-2017. Against the euro it had dropped 0.4 per cent, reaching €1.112.
The impact of a likely Boris Johnson premiership – with attached no-deal Brexit risks – continued to weigh on the pound, while weak retail sales figures for June exacerbated the fall.
Total sales fell by 1.3 per cent last month compared to a year earlier, with yearly UK consumer spending dropping to its lowest level since the 1990s, according to a report released by the British Retail Consortium (BR) and professional services firm KPMG this morning.
The weak reading came soon after a series of dismal data releases earlier this month showed marked slowdowns in the UK’s service, construction and manufacturing sectors.
Jordan Rochester, FX strategist at Nomura, said: “The UK has recession risk [which] has driven the short-term price action today.”
Official GDP data is due tomorrow. Dean Turner, UK economist at UBS Global Wealth Management, said that “barring a significant positive surprise” it was “likely to confirm that the economy is on course to register a contraction for the second quarter”.
The FTSE 100 was also in the red despite sterling weakness. It had dropped 0.2 per cent by 4.30pm to 7,536.5.
Another factor dragging down sterling was the scaling down of expectations that the US Federal Reserve will cut interest rates sharply this month.
Rochester said a global slowdown “with recession risks in the pipeline” meant the dollar was benefiting from “a flight to quality”.
Political and economic uncertainty in the UK meant “it’s not a flight to safety if you buy the pound, it’s the opposite,” he said.
Rupert Harrison, Blackrock portfolio manager and former adviser to chancellor George Osborne, said today that there was a “very, very wide range of outcomes” to Brexit in the coming months.
He said at an investment update that currency markets were “not reflecting the scale of that potential volatility”.
“The cumulative impact of the uncertainty… has definitely had a negative impact on momentum,” he said.
Main image credit: Getty