The pound fell 1% on Wednesday against the dollar as investors priced many more months of Brexit chaos and general election risk.
The British currency ceded gains made the previous day after the Supreme Court’s ruling against Prime Minister Boris Johnson. The top court’s decision reduced the probability of a no-deal Brexit and increased the chances of a Brexit delay.
Johnson now faces a hostile parliament that has returned to sitting. His opponents are seeking new ways to block him from pursuing a no-deal Brexit that they fear would cause huge economic disruption. Meanwhile opposition leader Corbyn said that once a no-deal Brexit had been averted, it would be appropriate to move a no-confidence motion and then hold a national election.
The court ruling that the UK Prime Minister had unlawfully suspended parliament sent the pound 0.5% higher on Tuesday. The pound had strengthened to $1.2504, not far from a 2-1/2 month high of $1.2582.
Sterling’s weakness was in part also down to a firmer dollar, which has been lifted by bellicose trade war rhetoric from President Donald Trump. Against the greenback, the pound fell to $1.2380. It weakened 0.6% to the euro to 88.41 pence.
Implied sterling/dollar volatility reflected the risk of continued political turmoil.
START TRADINGForex – Investors still price Brexit chaos
Markets have already been roiled by political disquiet in Hong Kong from Britain to Italy and the Middle East. The latest developments promped investors to ditch riskier assets and flock back to safe havens. Forex markets elsewhere were largely in a risk-off mood.
The dollar index, measuring the U.S. currency against a basket of six other major currencies, nudged 0.3% higher. The dollar recovered on Wednesday after being hit a day earlier by the launch of a formal impeachment inquiry against U.S. President Donald Trump. Against the euro, it rose 0.2% to $1.0999.
The safe-haven Swiss franc edged up 0.2% against the euro to 1.0845 francs.
Renewed global trade tensions weighed on Australian dollar. The China-exposed Australian dollar weakened 0.3% to $0.6779.
The New Zealand dollar bucked the trend after its central bank gave a less dovish monetary policy outlook than expected. The Kiwi was last 0.1% higher at $0.6319.
The yen dropped 0.2% against the dollar to 107.28 yen.
The Canadian dollar was trading 0.2% lower at 1.3272 to the greenback, or 75.35 U.S. cents. The loonie lost ground as the price of oil, one of Canada’s major exports, fell for a second day.
Oil prices fell as investors worried that fuel demand could weaken. U.S. crude oil dipped to $56.19 a barrel. Brent crude dropped to $61.7 per barrel – both down nearly 2%.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money