Yahoo Finance Pound hits two-year low as fears grow of no-deal Brexit and economic slowdown
The pound dropped to its lowest value in more than two years against the dollar on Tuesday, after figures showed an alarming drop in consumer spending amid continued Brexit uncertainty.
Sterling was trading as low as $1.246, down more than 0.4% in morning trading after several days of falls compounded by a rally in the US dollar. Sterling is also near a six-month low against the euro.
The pound hit its lowest value against the dollar since April 2017, with poor consumer data proving another alarm bell about the state of the UK economy.
Many analysts expect to see contraction in the first half of the year when official figures on GDP are published this week.
A run of poor figures on the performance of manufacturing, services, construction and retail sectors has rattled investors in recent weeks, and fears are growing of a catastrophic no-deal Brexit.
“The tension between the US and UK following Trump’s attack on the latter’s ambassador may be playing its part; ditto the ongoing Brexit uncertainty as the Tory leadership race continues,” said Connor Campbell, a financial analyst at Spreadex.
READ MORE: Consumer spending is at its weakest since the mid-1990s
Bank of England governor Mark Carney signalled last week that the central bank may strike a more dovish tone at its August policy meeting.
Markets are now pricing in a rate cut over the next 12 months, according to Reuters.
“The odds are that rising slack in the economy will lead the Bank of England into a cycle of easing,” said Sebastian Galy, a strategist at Nordea Asset Management.
RBC Capital Markets strategist Adam Cole noted that betting markets were now pricing in a 95% chance of Boris Johnson, who some investors fear will push Britain towards a no-deal Brexit, becoming the next prime minister.
Cole also noted that the recent retail sales data pointed to a "softening trend in consumer spending and consensus forecasts now have the UK economy contracting in Q2."
"While a significant measure of Brexit risks have already been priced, the pound may still have more of its downside exposed, should the prospect of a no-deal Brexit ramp up meaningfully over the coming months," said Han Tan, a market analyst at FXTM.
READ MORE: Business confidence at lowest ebb since the crisis
Both Boris Johnson and Jeremy Hunt, the two remaining candidates in the race to lead the Conservative party and become the next prime minister, have not ruled out leaving the EU without a deal.
A monthly Deloitte survey published on Monday showed chief financial officers are more nervous about risk than at any time since the collapse of Lehman Brothers during the 2008 financial crisis.
