The pound struggled at 32-year lows against the dollar in Asia yesterday after reports said British Prime Minister Theresa May was ready to take the country out of the European Union in a so-called “hard Brexit”.
Sterling’s retreat came with losses on most Asian stock markets as investors nervously await Donald Trump’s inauguration speech on Friday, having been left disappointed at his lack of detail on economic policy at a news conference last week.
A number of Sunday newspapers in the UK said May was willing to pull out of the single market, the European customs union and the European Court of Justice, in order to regain control of immigration.
The news sent sterling plunging to $1.1986, its lowest since October’s “flash crash” that sent it to $1.1841 – a level not seen since the start of 1985.
The unit later pared some of the losses to sit just above $1.20.
“The weekend reports were undoubtedly the factor that pushed the pound down,” said Nomura forex strategist Yoshitaka Suda.”Markets are watching what Britain does.”
The reports come as May prepares to give a speech Tuesday on the government’s strategy on leaving the
European Union.
The PM aims to launch two years of departure talks when she triggers the Article 50 exit process by the end of March, although a legal challenge is still pending before the country’s Supreme Court.
“Even if the pound recovers somewhat in London, it seems as though the realities of a hard Brexit are still not fully priced in,” Sean Callow, senior strategist at Westpac Banking Corp in Sydney, told Bloomberg News.
“It is difficult to make the case for the pound to avoid testing, probably breaking, the ‘flash crash’ lows in coming weeks.”
Regional stock markets were also under pressure as dealers look ahead to Trump’s inauguration Friday with uncertainty.
World equities surged after his election win in November on bets his plans for big infrastructure spending and tax cuts would fire the world’s top economy, and in turn the global economy.
But the lack of any definitive plan at last week’s briefing left many scratching their heads and worrying he might not fulfil his promises.
Tokyo ended 1% lower at 19,095.24 as a pick-up in the yen against the dollar hit exporters, while Hong Kong also shed 1% at 22,718.15.
Shanghai ended down 0.3% at 3,103.43.
Seoul lost 0.6%, Singapore retreated 0.7% and Taipei slipped 0.9%, although Sydney edged up 0.5%.
A businessman walks past an electronic quotation board flashing the Nikkei key index in front of a securities company in Tokyo. Japanese shares ended 1% lower at 19,095.24 yesterday as a pick-up in the yen against the dollar hit exporters.
