Sterling fell to its lowest level in three months in Asian trading on Monday, as comments over the weekend from officials familiar with the Brexit strategy prompted investors to fear a ‘hard Brexit’.
Theresa May has remained tight-lipped over her plan for Brexit in a bid not to compromise the negotiations, but more detailed information is to be set out in a speech by the Prime Minister on Tuesday.
Sources familiar with the matter expect her to outline plans to pull out of the customs union and the EU single market, putting tighter immigration controls above the demands of British businesses, prompting sterling to slide below the $1.20 level.
The pound also dropped to a two-month low against the euro, falling more than 1 percent to about €1.13 in Asian trading. It has since seen a slight recovery, but remains down 1.2 percent on the dollar.
“It is impossible to say by how much a hard Brexit could weaken GBP, but we do not believe that a further 5-10 percent depreciation should be regarded as an extreme scenario when set aside the UK’s high dependence on foreign capital,” wrote analysts at JPMorgan in a note.
Over the weekend US President-elect Donald Trump praised the UK for its decision to leave the European Union in his first official interview a British newspaper. His comments were published in The Times, where he told ex-leadership contender Michael Gove:
“You look at the European Union and it’s Germany. Basically a vehicle for Germany. That’s why I thought the UK was so smart in getting out.”
Trump spoke from what he called his “glitzy, golden man cave”, commenting on German chancellor Angela Merkel’s role in Brexit:
“I think she made one very catastrophic mistake and that was taking all of these illegals, you know taking all of the people from wherever they come from. And nobody even knows where they come from.
“People, countries, want their own identity and the UK wanted its own identity. But I do believe this: if they hadn’t been forced to take in all of the refugees, so many, with all the problems that it … entails, I think that you wouldn’t have a Brexit,” he continued.