The pound was on track for its biggest daily slide in a month on Monday after data showed the British economy slowed sharply in April with the manufacturing sector proving to be a weak spot as a results of Brexit uncertainty.
The economy contracted sharply after the biggest decline in car production since records began, as manufacturers were unable to reverse closures planned for Britain’s expected departure from the EU.
“Manufacturing production was hit especially hard by the auto sector, which had brought forward some factory closures, which usually happen later in the year, to accommodate for the Brexit extension,” John Marley, a senior currency consultant at FX risk management specialist, SmartCurrencyBusiness, said.
The pound fell 0.6% to $1.2653 and is on track to post its biggest daily drop since mid-May. Sterling has been stuck around $1.27 as investors await the outcome of the Conservative party leadership contest to decide who will succeed British Prime Minister Theresa May.
May is stepping down following her failure to take Britain out of the European Union and Britain’s Conservative party ballot begins on Thursday.
The nomination of frontrunner Boris Johnson, a prominent eurosceptic, could increase the risk of a no-deal Brexit, which traders say would send the pound plummeting.
“Frontrunner Johnson continues his battle with Brussels… Favour sterling under-performance, which probably means EUR/GBP to 89.4 pence,” said ING currency strategist Chris Turner.
It also weakened by a third of a percent against the euro at 89.26 pence.