UK PM Johnson's no-deal Brexit gamble hammers sterling

Published July 30, 2019
The pound has lost 3.6 cents since Johnson was named Britain's new prime minister a week ago. — AFP/File
The pound has lost 3.6 cents since Johnson was named Britain's new prime minister a week ago. — AFP/File

The British pound tumbled on Tuesday as investors bet Prime Minister Boris Johnson's Brexit brinkmanship with the European Union could trigger a messy divorce that would sow chaos through the world economy and financial markets.

Sterling crashed through trading barriers, falling to an intraday low of $1.2120 in shallower overnight Asian trade, the lowest since March 2017. The pound has lost 3.6 cents since Johnson was named Britain's new prime minister a week ago.

Ever since the 2016 EU referendum, the pound has gyrated to the rhetoric of the Brexit divorce. After the result was announced, it had the biggest one-day fall since the era of free-floating exchange rates was introduced in the early 1970s.

Since the 2016 vote, sterling has now lost 28 cents, one of the most significant falls for the currency in recent decades.

"We see more GBP weakness to come," ING said in a note to clients. "The current sterling meltdown is in line with our view that GBP risks are heavily skewed to the downside given the Brexit uncertainty and rising odds of an early election (our base case)."

Johnson, who was hailed by US President Donald Trump as Britain's Trump, has promised to strike a new divorce deal with the European Union and to energise the world's fifth-largest economy after what he casts as the gloom of Theresa May's premiership.

On entering Downing Street on Wednesday, Johnson set up a showdown with the EU by vowing to negotiate a new deal and threatening that, if the bloc refused, he would take Britain out on October 31 without a deal to limit economic dislocation.

Tour of the union

He told reporters in Scotland on Monday that he wanted to get a new deal but that the government had to prepare for a no-deal Brexit.

When asked about his remark during the campaign for the party leadership that the odds on a no-deal Brexit were a million to one, he said: "Provided there is sufficient goodwill and common sense on the part of our partners, that is exactly where I would put the odds."

Many investors say a no-deal Brexit would send shock waves through the world economy, tip Britain's economy into a recession, roil financial markets and weaken London's position as the pre-eminent international financial centre.

Supporters of Brexit say that while there would be some short-term difficulties, the disruption of a no-deal Brexit has been overplayed and that in the long-term, the United Kingdom would thrive if it left the European Union.

Johnson's ascent has placed an avowed Brexiteer in charge of the British government for the first time since the 2016 EU Brexit referendum.

Johnson will tell Welsh farmers on Tuesday they will get a better deal after Brexit, part of a countrywide tour to win support for his "do or die" pledge to leave the European Union by October 31.

"I will always back Britain's great farmers and as we leave the EU we need to make sure that Brexit works for them," Johnson said before arriving in Wales.

"Once we leave the EU on the 31st of October, we will have a historic opportunity to introduce new schemes to support farming and we will make sure that farmers get a better deal. Brexit presents enormous opportunities for our country and it's time we looked to the future with pride and optimism."

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Military option
Updated 21 Nov, 2024

Military option

While restoring peace is essential, addressing Balochistan’s socioeconomic deprivation is equally important.
HIV/AIDS disaster
21 Nov, 2024

HIV/AIDS disaster

A TORTUROUS sense of déjà vu is attached to the latest health fiasco at Multan’s Nishtar Hospital. The largest...
Dubious pardon
21 Nov, 2024

Dubious pardon

IT is disturbing how a crime as grave as custodial death has culminated in an out-of-court ‘settlement’. The...
Islamabad protest
Updated 20 Nov, 2024

Islamabad protest

As Nov 24 draws nearer, both the PTI and the Islamabad administration must remain wary and keep within the limits of reason and the law.
PIA uncertainty
20 Nov, 2024

PIA uncertainty

THE failed attempt to privatise the national flag carrier late last month has led to a fierce debate around the...
T20 disappointment
20 Nov, 2024

T20 disappointment

AFTER experiencing the historic high of the One-day International series triumph against Australia, Pakistan came...