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30 Jul, 2019 12:17

Pound plunges to 2-year low after PM Johnson’s no-deal Brexit ultimatum

Pound plunges to 2-year low after PM Johnson’s no-deal Brexit ultimatum

The British pound has dropped nearly 3% against major currencies in the past four days with fears brewing that the UK will crash out of the European Union without a deal.

After officially becoming UK’s new prime minister, Boris Johnson focused his first address to lawmakers in the House of Commons on solving the Brexit problem. More precisely, Johnson promised to take Britain out of the EU – deal or no deal – by the October 31 deadline. 

Following the ultimatum, on Monday the prime minister insisted he will not hold Brexit talks with EU leaders unless the bloc lifts its refusal to reopen the existing divorce deal.

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Amid heated rhetoric from government ministers that followed, Europe’s markets on Tuesday suffered a turbulent start as the pound fell as far as 0.8% to $1.2119 and 0.5% to 91.64 pence per euro, its weakest standings since 2017.

It came after a steady drop in the UK currency standings over the previous three days. Experts say sterling is headed for a further slump as market concerns over a no-deal Brexit intensify.

The biggest threat to the pound for the remainder of this year is the risk of an accidental no-deal Brexit,” Bloomberg cited a note to clients from Credit Agricole SA strategists.

We continue to estimate a long-term fair value for pound-dollar that is consistent with a disruptive Brexit outcome of around 1.20,” the note added.

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The last time the pound was losing positions with such intensity was in October 2016, when the currency dropped a full 6% against the US dollar in one minute. That drop was thought to have been caused by the first announcement of Brexit plans by the then Prime Minister Theresa May.

Meanwhile, Johnson’s government is preparing a shift in the focus of the UK’s post-Brexit economy; the UK’s new Secretary of State for International Trade Liz Truss has announced a new US trade deal is in the making.

[As] we leave the EU, we’re going to strike the free trade deals that will open up new markets for our products, and give people access to a greater variety of goods and services from across the globe. […] My main priority now will be agreeing a free trade deal with the US,” Truss wrote in an article for the Telegraph, adding that her department has already “locked in deals covering £85 billion ($103bn) worth of trade, which will apply whether we leave the EU with a deal or without one.” The EU, which the UK is still part of, forbids member-states from forming international trade agreements individually. 

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