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The pound fell for a record 13th day against the euro as Prime Minister Theresa May came under renewed pressure to step down after her new Brexit plan was roundly rejected.
Sterling dropped to the lowest level in over four months against the dollar, after many of May’s lawmakers and the opposition Labour Party vowed to vote against her proposals in Parliament next month. With May’s rivals already jockeying to replace her, there is potential for a bigger sell-off if her eventual replacement takes a more hardline stance on Brexit.
“May’s latest attempt to conjure up a viable compromise EU Withdrawal Bill went down like a lead balloon in her own party and didn’t get visible support from anyone else, merely adding to uncertainty,” said Kit Juckes, a strategist at Societe Generale SA. “Pound-dollar is going to go on trying to drag euro-dollar down.”
The pound is the worst performer among peers this month as the Brexit impasse drags on the economy by stifling business investment and consumer confidence. That’s a turnaround from earlier in the year when sterling led gains on hopes that May could pull off a deal. Adding to sterling stress and May’s political woes are Thursday’s European elections, with Nigel Farage’s Brexit Party dominating the polls.
The pound declined 0.3% to $1.2668 by midday in London, after touching the lowest level since Jan. 4, to take losses this month to 2.8%. It fell 0.4% to 88.17 pence per euro, in the longest run of losses since the common currency was introduced.
Sterling briefly rallied Tuesday after May said lawmakers would get a vote on a second referendum if her deal wins Parliament’s approval, which now seems unlikely. May is facing pressure to abandon the latest proposals and quit within days, according to people familiar with the matter, after government officials said they were shocked the new offer had been so badly received.
U.K. government bonds outperformed their European peers as traders sought a haven, with 10-year yields dropping four basis points to 1.04%. The more-domestically focused FTSE 250 Index lagged behind gains in the benchmark FTSE 100 Index, which rose 0.4%.
Still, there was no sign of panic in the options market, where sentiment on the pound is negative but well above levels that would signal traders are pricing in a no-deal Brexit scenario. Six-month risk reversals, which cover the Oct. 31 deadline to leave the European Union, are trading at 143 basis points in favor of selling the pound, compared to the 270 basis points seen in March and November when the risk of no deal escalated.
Support for Farage’s no-deal supporting party is at 37%, according to a recent survey, compared to 19% for the pro-remain Liberal Democrats and just 7% for May’s Conservatives. A large win for the Brexit Party could ramp up the pressure on May to resign, in turn causing sterling to fall further, according to Nomura International Plc.
“What could be viewed as best from a sentiment perspective and for the pound, would be for PM May to resign now and not waste the next two weeks on a deal that stands next to no chance of passing,” said Fritz Louw, a currency analyst at MUFG Bank Ltd. “We see scope for further pound declines from here over the short-term.”
— With assistance by Vassilis Karamanis
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