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Pound plummets on brexit news

• Posted by Shyam Gokani in Uncategorised
• October 4, 2016
• No Comments

Sterling slid to its lowest in more than three decades against the dollar on Tuesday, on growing fears that Britain’s looming departure from the European Union will hit the economy.

Sterling had skidded more than 1 percent on Monday on the back of Prime Minister Theresa May’s announcement a day earlier that the formal process to take Britain out of the European Union will start by the end of March.

Sterling extended losses this morning, slipping more than half a percent to $1.2757, its weakest since June 1985. It also hit a three-year low of 87.56 pence per euro, down 0.2 percent on the day.

What is causing particular uncertainty among investors are the strong affirmations of the British government to insist on limiting the freedom of movement.

This increases fears of a “hard” Brexit because so far nobody sees a possibility of achieving this without May having to accept notable restrictions when it comes to accessing the (European) single market. That in turn is likely to lead to considerable economic effects and be of notable relevance for the attractiveness of sterling investments.

Many in the market are concerned that Prime Minister May’s government will back a “hard Brexit” exit from the European single market, send Britain into a recession and blow out its current account deficit, already among the highest in the developed world.

So far the economy has shown resilience post-referendum, but fears of an economic slowdown will raise the prospect of further easing by the Bank of England in the coming months and weigh on the pound.

This morning, the construction sector purchasing managers’ index was released, this showed a increase to 52.3 vs an expected 49. On Monday data showed factory activity grew at the fastest rate in more than two years last month and suggested manufacturing growth in the third quarter will be the strongest so far this year.

However, this data is not having an impact on the markets. Currently the Sterling price is being driven by political data rather than economic.