UK currency volatile as investors try to gauge Brexit risks

LONDON — The pound on Tuesday touched its lowest level against the dollar since 1985, excluding a brief "flash crash" in 2016 that may have been caused by technical glitches, as international investors fret over a political showdown over Brexit this week.

The British currency fell as low as $1.1960, down almost a cent on the day before recovering somewhat to $1.2060. Not counting the brief plunge in the autumn of 2016, in which the currency fell to $1.1789 for about two minutes before bouncing back, the pound on Tuesday touched its lowest point in 34 years.

Brexit is facing a crucial few days as lawmakers challenge Prime Minister Boris Johnson's insistence that the U.K. will leave the European Union on Oct. 31 even without a deal.

Parliament is returning from its summer recess Tuesday with a key piece of legislation on its agenda that would see it take control of the Parliament's agenda. If that passes, the lawmakers are expected to vote to block the government from bringing the country out of the EU without a deal, which many experts say would cause chaos for people and businesses as border checks and tariffs resume, among other things.

Johnson has tried to crack down on members of his Conservative Party who oppose his Brexit plans, warning them they would be expelled from the party if they supported parliamentary efforts to block or delay Brexit. Johnson's office also says he would call an early election, with uncertain consequences.

"Markets are extremely negative about the consequences of a no-deal scenario," said Alex Kuptsikevich, analyst at online brokerage FxPro. "The pound will have a hard time if the (lawmakers') initiatives fail."

The pound has become the main indicator of international investors' confidence in Britain's economy. Its fall effectively makes British people poorer as they can spend less on travel and foreign goods, which become pricier.

But it also helps British exporters as well as the many multinationals that are based in the country but make most of their money in other countries and currencies. Oil companies like Shell and BP make their money in dollars around the world, converting that back to pounds when they report earnings, so the pound's drop is generally a boost to them. It's a similar story for global bank HSBC, mining firms Antofagasta and Rio Tinto and consumer goods producer Unilever.

That's why the main stock index, the FTSE 100, has actually held up well in the face of the Brexit chaos. While the pound is down almost 7% this year, the stock index is up 8%. Stocks focused on Britain's own economy, however, have fared more poorly.

The fall in the pound can also make British companies more vulnerable to takeovers from abroad as they effectively become cheaper to buy. Foreign takeovers of British companies jumped after the June 2016 Brexit referendum, when the pound fell around 10% in a day from over $1.500. They have increased again this year as the pound slipped again.

___

Follow AP's full coverage of Brexit and British politics at: https://www.apnews.com/Brexit

You may also like these

Australian Senate to vote in June on corporate...

May 28, 2018

The Australian government has announced the Senate will vote in June on cutting corporate tax rates...

Amazon to block Australians from global websites...

Jun 1, 2018

Amazon will block Australians from buying from its international e-commerce websites and restrict...

Huawei executive warns Australia risks economy...

Jun 27, 2018

A Huawei executive says Australia could damage its economic future if it bans the Chinese...

EU foreign policy chief wants quick Australian...

Aug 8, 2018

The European Union's foreign policy chief, Federica Mogherini, says she wants a free trade...

Australian PM rules out minor party deal to...

Mar 28, 2019

Australia's prime minister has ruled out any vote-sharing deal with an influential minor party in a...

Search
Financial Markets

About Us

Established in 2015, The Upstocker provides insights on financial reports, commentary, and investment data to traders so that you can make better investment decisions.

Contact us: sales[at]theupstocker.com

Subscribe Now!