Sterling slides below US$1.29 as Brexit sell-off worsens

Sterling slides below US$1.29 as Brexit sell-off worsens

Britain is due to leave the European Union in March next year, although it has secured a transitional arrangement to keep its trade ties with the bloc unchanged until the end of 2020, as long as a permanent deal can also be reached in the coming months.

Pound sterling is now selling off against the U.S. dollar and the Japanese yen, while strengthening against the Australian dollar and the euro.

Sterling slid 0.4% to $1.2894 at around midday - its lowest level since 31 August 2017.

Sterling/dollar three-month implied volatility - a gauge of how volatile traders expect a currency to be - this week spiked to its highest since early March.

Investors appear to view a no-deal Brexit as a growing possibility, especially after Britain's Trade Minister Liam Fox suggested over the weekend that the likelihood of a no-deal outcome is as high as 60 per cent.

The news of no-deal Brexit weighs on Sterling sending it to the lowest level since August 31 a year ago and coupled with earlier comments of the outgoing Monetary Policy Committee (MPC) member Ian McCafferty who added to the no-deal Brexit fear in public debate together with dovish monetary policy outlook.

Sterling's price is suffering from ongoing concerns about a potential no deal Brexit.

Sterling slumped 0.6 percent versus the euro to 90.175 pence.

His comments echoed those Bank of England Governor Mark Carney last week.

The BoE raised interest rates from crisis-era lows last week but the pound didn't benefit. "The next move by the central bank could be a cut rather than another hike".

Options markets supported the idea that there would be little relief in the coming months for sterling.

"We remain bearish on the pound in the short term until the Brexit mess is out the way", said Nomura strategist Jordan Rochester, predicting a range of $1.27-$1.28 before September. That indicates a sharp rise in demand for sterling "puts", or options to sell the currency.

Brexit uncertainty and the lack of economic stimulus both weigh on Sterling that broke 1.3000 psychological level this week and after the news of the United Kingdom government readying itself for no-deal scenario it easily broke below 1.2900 and reached the target of 1.2870, representing 61.8 percent Fibonacci retracement of the uptrend from a post-Brexit low of 1.1940 to 1.4373.