Pound falls ahead of May's Brexit speech

The pound sterling on Monday hit its lowest level for more than three months on reports that British Prime Minister Theresa May would in her address on Tuesday signal a "hard Brexit".

The sterling pound fell below $1.20 before bouncing back slightly on Monday, BBC reported.

The pound also dropped to a two-month low against the euro, falling more than 1 per cent to about 1.13 euro in Asian trading.

According to analysts, traders were reacting to reports that May will signal pulling out of the EU single market and customs union, although Downing Street described this as a "speculation".

The pound has fallen about 20 per cent against the dollar since in the June 24 referendum Britain voted to exit the EU. This low was last seen in 1985.

Much of that volatility has been due to uncertainty about the economic impact if the UK gives up its tariff-free access to the EU.

The latest fall comes as US President-elect Donald Trump backed "Brexit" and said the fall in the pound was "great" for British business.

Trump suggested his Scottish golf course in Turnberry had benefited from the fall in the value of the pound sterling, and that "business is unbelievable in a lot of parts in the UK".

According to May, she will trigger Article 50 by the end of March, starting Britain's formal withdrawal from the EU, and few details of the kind of deal she will seek have been revealed.

According to British media reports, May would this week outline a "hard Brexit" approach.

The currency movement was "clearly another political drop for sterling", said Jasper Lawler, an analyst at London Capital Group.

"The pound is now back into flash crash territory," he said.

The flash crash on October 7 saw the pound drop to its lowest post-referendum level -- below $1.19 -- before recovering.

Reports of the UK leaving the single market are "like kryptonite" to traders who back the pound, said Kathleen Brooks, an analyst at City Index.

The drop indicated that foreign exchange traders were "not confident that May can deliver the necessary clarity and confidence when she lays out her Brexit plans", Brooks said.

Even though May has been linked to a "hard Brexit" approach before, it is seen by traders as a downside for the pound, and so every headline can "generate another wave of selling", Brooks said.

Laura Lambie, senior investment director at Investec Wealth and Investment, told the BBC that Bank of America forecast the pound could fall to as low as $1.15.

"We've got the banks continuing to report, we've got Trump's inauguration at the end of the week, Janet Yellen speaking a couple of times and obviously we've got May's speech," Lambie noted.

"There's a lot for the market to digest over the next five days, so I suspect the pound may well be a casualty of that," she added.

--IANS

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