The pound edged lower on Friday after registering its biggest daily jump in more than two months in the previous session. Traders focused on the growing fears of no-deal Brexit.
Sterling was on the back foot again, falling 0.2% and undoing some of its recovery on Thursday.
British lawmakers voted for a plan to make it harder for a new prime minister to push through a no-deal Brexit. Yet, market watchers have steadily increased the probability of such an outcome this week.
Economists at Berenberg who now assign a 40% probability of a hard Brexit say the choice of Boris Johnson, the favourite to succeed Prime Minister Theresa May, to surround himself with hardline eurosceptics is an indicator of such growing risks.
That has rattled investors and this week they dumped sterling, which dropped to a 27-month low against the dollar. Also, there was a six-month low versus the euro. On Friday, those no-deal Brexit fears dominated sentiment. The pound weakened 0.2% to $1.2519 against the dollar and 0.1% versus the euro to 89.89 pence.
START TRADINGForex – No-deal Brexit fears send pound lower
Central banks are launching another round of policy easing in an attempt to lift stubbornly low inflation and fight signs of an economic slowdown. Expectations of a dovish shift in the rate cycle have boosted emerging market currencies.
The dollar slipped before rebounding slightly. The dollar index, which hit a two-week low of 96.648 on Thursday, was 0.2% higher at 96.988.
The yen dropped against the dollar, falling 0.3% to 107.66.
The New Zealand dollar which has rallied more than 1% to a 3-1/2 month high this week, eased 0.2% to $0.6769. Investors expect Fed rate cuts to boost the attractiveness of the higher-yielding kiwi. The currency has the second-highest bond yield among G10 currencies after the U.S. dollar.
The euro fell against a rebounding U.S. dollar on Friday. The common currency hit a 2-year low versus the Swiss franc. Investors ramped up bets for a European Central Bank interest rate cut as early as next week.
Against the Swiss franc euro touched a two-year low of 1.1033 francs per euro, down 0.3% on the day. The franc, viewed as a safe haven, has benefited as investors grow nervous about the euro zone economic outlook.
Oil prices rose on Friday as tensions spiked again in the Middle East. United States said it had destroyed an Iranian drone in the Strait of Hormuz, a major chokepoint for global crude flows.
Brent crude futures were up 37 cents, or 0.6%, at $62.30 a barrel by 1356 GMT, having risen as high as $63.32. West Texas Intermediate crude futures were 19 cents, or 0.34%, higher at $55.49 per barrel after touching $56.36.
PLEASE NOTE The information above is not investment advice.Sources: Reuters, Investing, CNN money