Pound drops to 32-year low over worries of ‘hard Brexit’

Reports in the UK press that the British prime minister Theresa May was willing to pull out of the single market, the European customs union and the European Court of Justice, to regain control of immigration, sent the sterling plunging to US$1.1986.

Sterling’s retreat came with losses on most Asian stock markets as investors nervously await Donald Trump’s inauguration speech on Friday. Mohd Rasfan / AFP

The pound struggled at 32-year lows against the dollar in Asia on Monday 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 Mrs May was willing to pull out of the single market, the European customs union and the European Court of Justice, to regain control of immigration.

The news sent sterling plunging to US$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 Mrs May prepares to give a speech on Tuesday on the government’s strategy on leaving the EU.

The prime minister 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.

“The market is now positioning for some fairly punchy rhetoric from Theresa May and this idea of hard Brexit and a clean break from the single market seems increasingly likely,” Chris Weston, Melbourne-based chief market strategist at IG Ltd, told Bloomberg.

“The prospect of volatility here is now very high.”

Regional stock markets were also under pressure as dealers look ahead to Mr Trump’s inauguration on 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 fulfill his promises.

Tokyo ended the morning session 0.9 per cent lower, while Hong Kong shed 0.9 per cent and Shanghai gave up 0.7 per cent.

Seoul lost 0.5 per cent, Singapore retreated 0.3 per cent and Taipei slipped 0.9 per cent, although Sydney edged up 0.5 per cent.

* Agence France-Presse

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