STERLING plunged as low as $1.2156 yesterday after Boris Johnson moved to suspend Parliament next month, leaving MPs little time to prevent a No-Deal Brexit.
Head of research for global markets at MUFG, Derek Halpenny, said the development brought us firmly into the realms of a constitutional crisis and warned there was an “incredibly narrow window” for Parliament to try to delay Brexit or organise a no-confidence motion against the Prime Minister.
“No-Deal Brexit is looking ever more likely, sterling downside risks will continue to plague the market,” he said, predicting that sterling would breach its recent low of $1.2015.
Sterling was trading 0.6% lower and was down 0.4% against the euro at 90.6p, having earlier weakened to 91.265p, its lowest in nearly a week.
The pound had rallied to a one-month high on Tuesday, but yesterday’s developments took the edge off that.
Jordan Rochester, a strategist at Nomura, said: “For the pound to recover the fall this morning, anti-No-Deal MPs will have to get their acts together in the first weeks of September.
He raised the odds of a No-Deal Brexit to 44% from an earlier 40%.
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Meanwhile, the FTSE 100 was up and down like a yo-yo, dropping to 7055 at one point, before rising to 7128, falling to 7062 and closing at 7114 – 25 points higher.
Ken Odeluga, at City Index, said there were signs of restraint in the market reaction: “The pound quickly erased around a half of its loss in the immediate aftermath of its slump, before slipping again, though it has held around the 50% mark of its slide.
“Sterling implied volatility across terms spanning one month or more remains elevated relative to July floors, but like shorter-term measures of how much options traders expect the pound to swing, it is not rocketing.”
Hann-Ju Ho, an economist with Lloyds Bank, said: “The pound found support as investors latched on to more positive tones between London and Brussels, as well as manoeuvres in the House of Commons in an attempt to block a No Deal.”
Michael Hewson, chief markets analyst at CMC, said: “Sterling is under pressure as a consequence of the prospect of a No-Deal Brexit increasing, while the FTSE 100 has jumped higher.
“Overall, though, this appears part and parcel of the ongoing battle between the various caucuses of MPs who want to block a No-Deal Brexit at all costs, and those who want to retain the option as part of the ongoing attempts to renegotiate the withdrawal agreement.”
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