U.K. Pound Tumbles on BREXIT Concerns
CBJ — The British pound has taken a tumble on concern over a “hard” Brexit from the European Union and its single market, a day before a speech by Prime Minister Theresa May on the government’s plans.
Some British newspapers have billed May’s speech on Tuesday as a push away from preferential EU single market access and a hardening of the UK’s stance toward an economic bloc that accounts for roughly half its exports and imports.
A spokeswomen for May, who will also attend a gathering of the world’s economic elite in Davos, Switzerland, this week, called the reports about the planned tone of her upcoming speech “speculation”.
That helped steady sterling in London trading but couldn’t repair all the damage. The pound at one point had dropped below $1.20 to a three-decade low against the dollar, barring its ‘flash crash’ in October, and as much as 2.5% against the Japanese yen.
With May expected to trigger Article 50 by the end of March, which will start formal EU separation proceedings, the battle lines are already being drawn.
British finance minister Phillip Hammond also gave a thinly veiled warning in a German newspaper interview at the weekend that the UK could use corporate tax as a form of leverage in Brexit negotiations. However, he added that Britain did not want to close its doors completely to EU citizens who wanted to work in the UK.
May’s spokeswoman said on Monday her boss shared Hammond’s view on Britain’s tax framework. She added, though, that she did not recognize comments from Sunday Times sources that May’s office was expecting a “market correction” after her speech.
The pound has fallen almost 20% against the U.S. dollar and nearly 14% against the euro since the vote.
London’s stock market continued to benefit, however: the FTSE was the only major European index not in negative territory. It has surged 25 per cent since Brexit, partly because the pound’s slump helps internationally-spread companies that earn in dollars and euros.
Benchmark UK government bonds, gilts, also gained and outperformed, as the Europe-wide sell-off in stocks left investors moving to traditional areas of stability.
May has so far given very little away about what deal she will be seeking, frustrating some investors, businesses and lawmakers.
Tuesday’s speech will stress the need for Britons, who voted for Brexit by 52 to 48% in last June’s referendum, to unite around common goals such as protecting and enhancing workers’ rights, her No.10 Downing Street office said in a statement.