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Pound has futher room to drop

• Posted by Shyam Gokani in Bank of England, Brexit, Currency, Dollar, Economy, EUR, GBP, Mark Carney, Prime Minister, Referendum, Sterling, UK
• October 6, 2016
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Britain’s pound dipped below $1.27 for the first time since June 1985 yesterday, with fears of a ‘hard’ Brexit from the European Union also pushing the currency to a five-year trough against a broadly stronger euro.

Sterling has been buffeted for a fortnight by worries that Britain will prioritise curbing immigration over promoting trade in its divorce from the bloc, thereby gumming up labour markets, curbing foreign investment and leading to cutbacks by banks and other global companies.

That has been the broad takeaway for markets from this week’s conference of the ruling Conservative Party, and the pound has fallen past long-term lows set in early July in response, although there were signs of stability in morning trade in London.

Sterling hit a 31-year low of $1.2686 after opening before recovering to $1.2717, marginally lower on the day. It fell as much as 0.5 percent to 88.43 pence per euro before also clawing back some ground against the common currency.

Better-than-expected readings of sentiment among construction and manufacturing purchasing managers this week have done little to turn the mood brighter. Services numbers were also better than forecast but not enough to pull it higher on the day. Currently the pound weakness is being controlled by political news rather than the economic data.

Article 50 refers to the EU constitutional paragraph under which Britain will lodge its formal declaration that it wants to leave the bloc, now expected by next March and triggering a two-year countdown to its departure.

A report on Tuesday commissioned by financial consultancy firm said Britain’s financial industry could lose up to 38 billion pounds ($48.3 billion) in revenue in a ‘hard’ Brexit that left it with restricted access to the EU single market.

That, and the threat of a squeeze on the foreign investment that Britain needs to fund its current account shortfall – now a record 7 percent of national output – have outweighed signs the economy was riding out the immediate impact of the Brexit vote this year.