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London - The pound fell to a one-month low as European Union leaders hardened their rhetoric over the consequences for Britain of leaving the trading bloc.
Sterling was the worst performer among 32 major peers after Czech State Secretary for EU Affairs Tomas Prouza said late Monday that the UK has “zero chance” of clinching an exit deal with both immigration curbs and free-market access. He’s the latest in a string of central and eastern European leaders to issue such warnings to Britain in the hope of maintaining their citizens’ ability to work in the country.
The UK currency was also undermined as traders used it as a way of betting on the Federal Reserve striking a hawkish tone when it announces its policy decision on Wednesday, according to Petr Krpata a foreign-exchange strategist at ING Groep NV.
“The seemingly tough position from CEE countries on the terms of Brexit, namely the migration issue,” together with the lack of certainty over when the UK will trigger the formal exit process, is hurting the pound, said London-based Krpata. Also, sterling “could be a good vehicle to position for a potential hawkish surprise from the Fed,” in which case it may decline to $1.28, he said.
The pound dropped 0.6% to $1.2957 as of 15:05, after touching the lowest level since August 16. Sterling fell for the past two weeks versus the dollar, after a three-week winning run. Britain’s currency slipped 0.6% to 86.24 pence per euro, also reaching the weakest in about a month.
While the futures markets are pricing in a roughly one-in-five chance of a Fed hike this week, two of the central bank’s own primary dealers - Barclays and BNP Paribas - have broken with the consensus to forecast a move.
