The pound slipped against a slew of currencies on Wednesday, a day after recording its biggest single-day surge in years, spurred by Prime Minister Theresa May offering some clarity on her vision for Brexit and the dollar declining sharply.
In early afternoon trading, sterling was around 1 per cent lower against the dollar and the euro, trading around $1.228 and €1.149 respectively.
Even after Wednesday’s jump, strategists had been quick to question the sustainability of the pound’s rally.
“Many questions about the future relationship between the UK and the EU remain open,” Unicredit currency strategists wrote in a note on Wednesday morning. “For now, we find it premature to turn bullish on sterling,” they added.
David Meier, an economist at Julius Baer also forecast that sterling’s Tuesday rally would prove temporary.
“In yesterday’s eagerly awaited Brexit speech, UK prime minster May finally delivered her visions of an independent UK,” he said. “However, this is only the beginning of a long process and we expect further [sterling] weakening once negotiations heat things up later this year.”
The pound has endured a rollercoaster ride sine June’s referendum.
It’s fallen about 18 per cent against the dollar since the vote and remains one of the worst-performing currencies in the world for the period.
In October, it suffered a ‘flash crash’ overnight, plunging to a 31-year low in a matter of minutes and sparking market chaos in early trading.
Last week, the Bank for International Settlements concluded that the crash was not a unique or unprecedented event but “a new data point in what appears to be a series of flash crash events occurring in a broader range of fast electronic markets than was previously the case in the post-crisis era”.
It also warned that such events “have the potential to undermine confidence in financial markets and hence impact the real economy.”
