The NZ dollar is now buying close to 54 pence. Photo / Getty Images
The NZ dollar is now buying close to 54 pence. Photo / Getty Images
Sterling plunged to lows last traded more than two years ago, as markets responded to the growing risk that Boris Johnson's Brexit strategy could lead Britain to a no-deal exit from the EU within months.
Johnson's demand that the Irish backstop must be ditched has been repeatedly rejected by Brussels,with one EU diplomat warning that the frontrunner in the Tory leadership contest appeared to be living in "a fantasy" world.
The pound fell 0.9 per cent on overnight to $1.2399 — its lowest since April 2017 — leaving it on course for its biggest single-session fall since March and below the level breached in a temporary "flash crash" in January this year. It was down 0.5 per cent on the euro at €1.1058.
The New Zealand dollar is now buying close to 54 pence, approaching highs of six months ago.
Johnson's allies denied a Sky News report that the man who hopes to become prime minister next week could suspend parliament for two weeks before the scheduled Brexit day on October 31 to stop MPs blocking it. "There are no plans for this," said one. "We want a deal."
The market has not warmed to Boris Johnson's Brexit strategy. Photo / Getty Images
Rory Stewart, international development secretary, said he was "deeply, deeply concerned", adding that a future Tory prime minister would be taking "an immense and unnecessary risk with our economy" if they tried to execute a no-deal Brexit.
The former leadership contender added: "I am confident that other colleagues, including cabinet ministers, will join me in blocking it." Philip Hammond, chancellor, Greg Clark, business secretary, are among those opposed to no-deal.
Allies of Theresa May, who steps down as prime minister, also expect her to join the fight to stop a no-deal exit. One friend said: "She didn't see her premiership founder on her decision to oppose no-deal, only to let somebody else do it."
Johnson and Jeremy Hunt, the two contenders to replace May, hardened their stances on renegotiating the withdrawal agreement with Brussels in their final leadership debate on Monday. Hunt said the backstop was "dead".
The Pound has struggled since March this year. Image / FT
[May] didn't see her premiership founder on her decision to oppose no-deal, only to let somebody else do it
But it is Johnson, odds-on favourite to enter Downing St next Wednesday, whose comments about the backstop — the "temporary" UK/EU customs union to avoid a hard border in Ireland — caused most concern.
Johnson said it would have to be scrapped. His policy would be "no to time limits or unilateral escape hatches or these kind of elaborate devices, glosses, codicils and so on which you could apply to the backstop".
Steve Barclay, Brexit minister, was repeatedly warned by Michel Barnier, EU chief negotiator, that the EU would never accept a deal without the backstop in acrimonious talks last week.
Richard Harrington, former business minister, said he hoped that whoever became prime minister would ultimately try to secure a negotiated exit deal, warning that a no-deal exit would be "suicidal for the party or the country".
The Pound Sterling has fallen sharply as Brexit anxiety drags on. Photo / Getty Images
On Tuesday, Paschal Donohoe, the Irish finance minister, said the prospect of a no-deal was more likely than ever. "The Irish government and the EU are really clear that we will not be changing the content of the backstop agreement," he said.
"It certainly seems to us that foreign exchange investors have been gradually assimilating the notion that there is no easy way out of Brexit and that something eventually has to give," said Stephen Gallo, head of FX strategy at Bank of Montreal.
Sterling is the worst performing major currency against the US dollar over the past one month, three months and 12 months. It has fallen more than 2 per cent so far in July as investors have repriced the likelihood of a hard or no-deal Brexit amid tough rhetoric from Johnson in particular, the overwhelming favourite. He has promised to leave the EU at the end-of-October deadline "come what may".
Charles Hepworth, investment director at asset manager GAM, said "both Hunt and Johnson are hardening their renegotiation stance with the EU" as they see this as a vote winner with the Conservative members, who are choosing the next leader. "Further falls in sterling can only be expected."
David Lowe, head of international trade at Gowling WLG a law firm, said the EU has indicated it is unlikely to even offer an extension to the Brexit deadline without a good reason. "A Boris Johnson proposal to scrap the Irish backstop has a high chance of being rejected and not seen by the EU as a good reason. And then the UK risks stepping off into the unknown of a no-deal Brexit on Halloween," he said.
London's FTSE 100 outperformed its continental European peers as the pound plumbed its lows, with the overseas earnings of its multinational constituents flattered when repatriated into sterling. London's main stock index was up 0.6 per cent, against a rise of 0.3 per cent for the Europe-wide Stoxx 600.
