The British currency pound has continued to fall against the US dollar as worries persist over the UK’s economic prospects outside the EU. Sterling suffered sharp losses last week as ministers at the Conservative party conference signalled they would opt for a “hard Brexit” settlement that sacrifices access to the single market and prioritises stricter immigration controls.
Sterling was under pressure again at the beginning of this week but some calm had returned to markets. The pound fell 0.3% against the US dollar to $1.2395 on Monday last. It was flat against the euro at €1.11. However, the pound’s weakness boosted the UK’s FTSE 100 share index – which features companies that make a significant proportion of their profits in dollars – as it closed at 7,097.5, near its record closing high of 7,104 last year.
Investor nerves were strained on Friday when the pound slumped more than 8% in a “flash crash” in overnight trading in Asia. It dropped from $1.26 to $1.1491 in just eight minutes – a huge plunge in a market where a single cent is a big change – and recovered only some of those losses during London trading hours. Sterling still ended the week about 4% lower against the euro and US dollar.
One market watcher said the currency was stabilising after the events of Friday morning. “The dust has started to settle after the flash crash overnight on Thursday saw the pound briefly trade below €1.10 and $1.20,” said Chris Saint, senior analyst at City firm Hargreaves Lansdown’s currency service.
With a quiet week ahead on the economic indicator front, he expected the pound to continue to take its cues from politics. “There is little on the domestic calendar this week to draw attentions away from ongoing worries over how politicians will handle Britain’s withdrawal from the EU,” said Saint.
David Davis, the Brexit secretary, claimed that the “major part of the fall” in the pound to a 31-year-low had been down to a “flash crash”. He told parliament on Monday: “There will be lots of speculative comments in the next two-and-a-half-years that will drive the pound up and down, but the government could not do much about that.”
The pound’s sharp fall has raised pressure on those UK firms that rely on imports, such as retailers and those manufacturers who need raw materials like plastics and metals. A weaker currency makes imports more expensive. On the other hand, it makes UK exports more competitive and some companies have reported a pick-up in overseas sales since the British vote to leave the EU in June knocked sterling.