Economists have warned sterling is likely to plunge to a new record low once Prime Minister Theresa May starts the official proceeding to leave the EU.
Theresa May’s speech at the Conservative Party conference and her declaration that Article 50 would be triggered by the end of March has sent the pound to a fresh 31-year low against the dollar, breaching the previous post-referendum vote level set in July.
Sterling has already dropped by nearly 20 per cent against the dollar since the UK voted to leave the EU, becoming the world’s worst-performing currency in October and many economists suspect the pound may have even further to fall in the months ahead.
The pound is likely to drop around 5 per cent to $1.15 against the dollar after Theresa May triggers Article 50 in March, starting the two-year countdown to leaving the EU.
That’s according to a Reuters’ poll of over 60 foreign exchange strategists taken in the past few days.
This would be a new 31-year low, including the flash crash which sent the pound plunging more than 6 per cent to $1.18 on October 7.
Some forecasters went as far as saying the pound may reach or fall below parity with the dollar. This is the first time anyone has made that forecast in over 20 years of Reuters’ polls on the currency.
Fears among currency traders and investors that the UK is heading for a hard Brexit - in which access to Europe's single market would be sacrificed in favour of tighter controls over immigration – are likely to hinder trade and further hurt sterling.
However, economic data since the EU referendum have generally been better than expected, so the outlook is far from clear.
Still, forecasts were generally lowered in the latest monthly poll from an October survey after the pound suffered weeks of volatility.
The pound got an immediate lift on Monday after Mark Carney has said he will remain as Governor of the Bank of England for three more years.
The pound was still trading up 0.28 per cent at $1.227 at market open time on Tuesday but quickly dropped back from its earlier gains to $1.224 by 9am.
Lukman Otunuga of FXTM previously said: “It is becoming clear that Sterling has been enveloped by political uncertainty with hard Brexit jitters ensuring prices remain depressed. Although UK data continues to point to some economic stability, Sterling may be destined for further declines as uncertainty entices bears to install repeated rounds of selling.”
