The British Pound Sterling crashed in a calm market on Tuesday, December 19, after climbing the previous day, with investors cautious about risks surrounding Brexit negotiations for the year ahead despite progress in the talks last week.
Sterling slipped 0.1 percent to $1.3363. Against the euro, the pound weakened 0.3 percent to 88.30 pence.
A survey that on Monday showed British factories matched a three-decade high for orders this month prodded the pound higher against the dollar and euro.
But sterling was not able to hold on to those gains, even given the breakthrough in divorce talks between Britain and the European Union at the end of last week that will mean the two sides can move on to discussions on trade and a transition deal.
“We’ve averted a near-term catastrophe and an extended stalemate in the talks, but now we move on to trade and transition. In one sense there’s been a bit of a resolution but in an another sense we’re still got a long way to go,” said BMO Capital Markets currency strategist Stephen Gallo.
“Sterling is just treading water – I don’t think anyone is thinking of putting any big positions on until the first or second week of January.”
It showed little reaction to data released earlier in the day showing British employers plan to hire more workers and raise pay more quickly in 2018, but they also fear that Brexit will make the country a less attractive place to do business.
Some investors reckon sterling is likely to strengthen in the coming months.
“The weakness of the pound, which is currently the worst performing G10 currency versus the U.S. dollar on a month-to-date basis, is likely to be an anomaly,” said MUFG currency strategist Lee Hardman, in London.
“A quick (Brexit) transition deal still appears the most likely outcome in the first quarter of 2018, a scenario which has yet to be factored into the price of the pound.”
But there are still worries about political uncertainty.
British Prime Minister Theresa May told parliament her plan on Monday for a Brexit transition period with broadly the same access to EU markets was met with scepticism from pro-Brexit lawmakers fearful of a watered-down EU exit.
Last week May’s fragility was exposed by the rebellion of 11 largely pro-European Conservative lawmakers in a parliamentary vote on Brexit legislation that led to an embarrassing defeat.
