Sterling has become a political basket case

If anyone was in any doubt that sterling is now one of the world’s most politicised currencies, its fortunes directly related to what sense the markets can get about the UK’s Brexit negotiations, the pound’s latest 24 hours should disabuse them.

Sterling had yet another torrid session on Tuesday, a continuation of the sharp falls it has endured since Theresa May made clear at the Conservative Party conference that the UK government was putting a greater priority on controlling its borders than it was on access to the EU's single markets, pointing to a so-called 'hard' Brexit.

That is seen as bad for the UK economy and, accordingly, the pound.

Overnight, sterling flirted with the $1.20 level, not far above the lows of $1.14 that it hit during last Friday's 'flash crash' .

However, as trade opened this morning, sterling rallied by around 1.5% against the US dollar and the euro .

The reason? Mrs May's agreement to opposition demands that there would be a " full and transparent " debate in Parliament before Article 50 of the Lisbon Treaty is triggered to begin the process of Brexit.

That was taken by markets as raising the possibility of something slightly less harsh than a hard Brexit. And it was instructive to see the reaction of the pound when, just before 10am today, a line dropped onto the Reuters newswire service that the PM's spokesperson was ruling out a parliamentary vote on whether or not Article 50 would be triggered.

The pound immediately gave up some of its gains against both the dollar and the euro.

In other words, the currency markets have now priced in the prospect of a hard Brexit.

Anything that points to a Brexit that is less severe than that, allowing continued access to the EU's single market, is sending sterling higher. Anything that points to the opposite is sending the pound lower.

That the pound is in unchartered waters, though, is beyond dispute. Yes, even though it has fallen by just under 18% against the US dollar since the vote to leave the EU, it has been lower than this.

It hit a low of $1.05 in February 1985 when, as now, the US dollar was enjoying a turbo-charged performance.

However, according to data provided by the Bank of England, sterling is close to an all-time low when measured against a basket of international currencies that not only include the greenback but also the euro, the Japanese yen and others.

The index is specifically calculated and weighted in order to measure changes in the price competitiveness of goods and services in which Britain trades and, accordingly, will give high weightings to the currencies of those countries with which Britain does a lot of its international trade.

That means high weightings for the euro, because it is the currency of major trading partners like Germany, France, the Netherlands, Belgium and Ireland (Other OTC: IRLD - news) , the US dollar and, in recent years, the Chinese renminbi.

On this basis, the pound has almost never been weaker against the currencies of Britain's trade partners, having fallen against the basket by more than 15% since the UK voted to leave the EU on 23 June.

It is also worth bearing in mind that, as foreign exchange is a zero-sum game, sterling's fortunes are also, to an extent, being depressed by the strength of other currencies.

The dollar has been trading strongly in recent months generally, due to expectations that the US Federal Reserve will raise interest rates in December and in anticipation that Donald Trump - whose election would be seen as very damaging to international trade - is facing defeat at the polls.

The pound has similarly fallen by 18% this year so far against the Swiss franc, a traditional safe haven and a stunning 28% against the yen, another safe haven.

Lord King of Lothbury, the former Governor of the Bank of England, told Sky News this week that the weaker pound was good news for Britain's exporters. He is right about that.

Britain's consumers, given the amount of imported goods they buy, will have plenty of reasons to disagree with him in coming months - starting with when the pound's collapse against the dollar, in which oil is priced, starts to feed through into higher petrol prices.