The pound has fallen to its lowest level for more than two years as investors react to the escalating no-deal rhetoric of Boris Johnson’s government.
Sterling slipped below $1.23 against the US dollar and fell sharply against the euro on the international currency markets on Monday, as cabinet ministers ramped up their warnings over a no-deal Brexit.
The pound dropped more than 1% against the US currency to trade at about $1.2240 on the foreign exchanges, extending a slide under way over recent months as the chance of Britain crashing out of the EU at the end of October mounts. On the single currency the pound was down by about 0.8% to €1.1033.
Analysts said comments from senior figures in Johnson’s cabinet had rocked the City, including a suggestion from Dominic Raab on Monday morning that Britain would be in a better place to negotiate a good deal with the EU after no-deal Brexit.
The foreign secretary told BBC Radio 4’s Today programme that the EU’s “stubborn” behaviour would be responsible if the UK left without an agreement with Brussels at the end of October.
Over the weekend, several key figures in Johnson’s government said the prime minister was “turbo-charging” preparations for no deal. Michael Gove, the new cabinet minister in charge of planning for such a scenario, said the government was operating on the assumption of leaving without a deal.
Hitting holidaymakers in the pocket as they head abroad during the school holidays, the pound has sunk by more than 10 cents against the dollar from a peak in excess of $1.33 in March. Against the euro it has fallen by more than 7 cents from a high of €1.17 recorded in May.
Even though Johnson’s stated aim is to avoid a no-deal outcome, leaving without one is viewed by investors, as well as ministers, as an increasingly likely prospect. The EU has maintained its stance that the withdrawal agreement negotiated with Theresa May will not change and is the best and only deal possible.
The FTSE 100 rose sharply as the currency headed in the other direction, gaining by almost 1.9% to stand at 7,690 in early afternoon trading. When the pound drops, the FTSE tends to rise as companies in the blue-chip index tend to make most of their earnings in foreign currencies such as the dollar.