Brexit Secured With Boris Johnson Victory – The British pound fell Monday in low-volume trading on concerns the U.K. could crash out of the European Union without a deal.
The currency slumped as much as 0.7% against both the dollar and the euro. It was its lowest level against the dollar in a month at $1.2905, and below its 50-day moving average, reversing the gains from its rally leading up to the U.K. election.
“The market is coming to realize that there is still a risk of a no-deal Brexit at the end of 2020,’’ said Jane Foley, head of currency strategy at Rabobank. “The U.K. prime minister’s reluctance to extend the transition phase could push the country over the edge without a deal at the end of the year; that risk wasn’t being fully appreciated but is being factored in now.’’
Lower trading volumes at the end of the year means “there’s very thin liquidity and the movements we see today are perhaps exaggerated,’’ Ms. Foley said. “But the fact that the move is lower and not higher is a reflection of this realization that sterling is going to remain very politically driven over the next few months.’’
Prime Minister Boris Johnson won the U.K. election two weeks ago in a landslide victory, crushing opponents in the Labour and Liberal Democrat parties with the strongest majority that the Conservatives have enjoyed in three decades.
The clear election result initially dialed back political uncertainty around the Brexit process and drove the pound up to $1.3515, its highest level since May 2018.
The calm, however, was short-lived. Mr. Johnson’s Brexit bill, which passed in the House of Commons last week, will legislate that a deal must be complete by the end of 2020. That would put into practice his campaign slogan “Get Brexit Done” and revive the possibility of the U.K. leaving the EU without a deal.
While today’s currency move shows that there is a “continuation of the unwinding and the rethinking of what the election means for the pound,’’ it could also be a symptom of traders who “made money on the upside of the election,’’ said Stuart Bennett, head of Group of 10 currency strategy at Banco Santander.
“They’re probably booking profits quickly before the year-end; it’s a reasonable thing to expect.’’