Sterling fell more 0.5% as concerns grew that May’s offer to resign failed to convince her party hardline eurosceptics to support her Brexit withdrawal deal.
Boris Johnson, who led the 2016 Brexit referendum campaign, said May’s deal – already defeated twice in parliament – is now dead. Another Conservative Party lawmaker, Mark Francois, denounced May’s EU divorce deal as “rancid”.
British lawmakers’ effort to agree an alternative plan in a series of “indicative votes” fell short on Wednesday. This left the Brexit process as deadlocked as ever.
The pound tumbled more than 0.5% to $1.3102 on Thursday morning. Against the euro, it weakened 0.7% to 85.59 pence.
In a sign of how nervous the forex markets have become, expectations of how much the pound will move in the coming weeks have climbed faster than bets on how volatile the pound will be over a year.
One-month implied volatility in sterling has risen by a quarter to nearly 13 vol. The spread between the one-month and one-year maturities has reached its widest point since the British referendum vote in June 2016.
START TRADINGForex – PM May’s offer to resign did not relieve pound
Growth-sensitive currencies have taken a beating recently on rising risks to the global economy.
The dollar rose on Thursday as other currencies struggled, following more dovish soundings from central banks. Renewed expectations that the European Central Bank will keep rates low for longer weighed. With many currencies on the defensive, the dollar has brushed aside a decline in benchmark U.S. Treasury yields to 15-month lows. The dollar index against a basket of six major currencies gained 0.4% to 97.155, its third day of gains.
The euro weakened 0.2% to $1.1225 as speculation grows that the ECB will introduce a tiered deposit rate. This is a sign that policymakers plan to keep interest rates low for longer. The euro remains above 21-month lows of $1.1167 touched a few weeks ago. Tumbling euro zone government bond yields have also weighed on the euro.
The Swiss franc held near 20-month highs of 1.1186 francs per euro. Analysts noted that the Swiss National Bank has intervened below 1.12 in the past to stop the franc from strengthening further.
The New Zealand and Australian dollars recovered somewhat after the New Zealand central bank’s dovish shift knocked both currencies lower on Wednesday.
The yen rallied 0.1% to 110.38 to the dollar as Japanese shares fell. However, there was some distance from Monday’s six-week high of 109.70. Risk aversion supported demand for the yen, which is considered a safer place to park cash in times of uncertainty.
Sources: Reuters, Investing, CNN money
PLEASE NOTE The information above is not investment advice.