Pound falls below $1.20 ahead of May’s speech

The pound has fallen below the $1.20 mark for the first time since the October “flash crash”, ahead of a speech on Tuesday when UK prime minister Theresa May is expected to signal that Britain will fully break out of the EU’s common market after Brexit.

The UK currency fell as much as 1.6 per cent to a low of $1.1986 against the dollar in early Asian trading in an unusually wide gap from Friday’s New York close at $1.2175.

Traders in New Zealand — the first centre to open after the weekend — said sterling first traded in Wellington at $1.2085, representing a fall of almost a cent from its close on Friday.

While it steadied to about $1.2020 as Asia’s bigger FX trading centres came online, the pound came under early pressure again in London, although it held the $1.20 mark ae European trading floors filled up, down 1.3 per cent on the day at $1.2012.

“The idea of a soft versus hard Brexit is redundant now — it’s a matter of how fast the hard Brexit arrives,” said Ray Attrill, global co-head of FX strategy at National Australia Bank in Sydney.

Mr Attrill noted that the pound traded steadily down to its low point. The steady action indicated investors were happy to buy and sell at the lower levels rather than sitting back in fear while the price plunged — as happened during the worst moments of October’s “flash crash”.

While Mrs May is not expected to go into great detail about the UK government’s stance as its self-imposed deadline for beginning negotiations looms, investors increasingly expect a tougher exit where Britain is no longer part of the single market.

Adding to concerns over the tenor and complexity of the approaching talks, chancellor Philip Hammond on Sunday warned that the UK would seek to undercut the EU on taxes if it was not granted good access to the single market.

“We think [Mrs May’s speech] is unlikely to completely lift the fog of uncertainty regarding the government’s negotiation priorities with the EU,” Jan Loeys, a senior JPMorgan analyst, said in a note, adding he thought there was a strong chance the tone of the speech would veer towards a “hard” Brexit line.

Strategists in Asia said investors had taken note too of other reports in British media that suggested the government would be prepared to withdraw from tariff-free trade with the EU in favour of cutting its own deals elsewhere.

New Zealand’s status as the global market’s opening venue for the week each Monday means dealers there are accustomed to getting trading orders from all over the world as investors react to events on Sunday in their time zones.

Trading in sterling is generally far thinner in Asian hours than when European and US dealers are at their desks. This can lead to outsized moves, particularly in the early part of the day.

The pound also opened sharply lower against the euro, with the single currency jumping 1.1 per cent to a nine-week high at £0.8853 from a Friday close at £0.8721.

An investigation by the Bank for International Settlements published on Friday into October’s sterling “flash crash” — also in the early hours of the Asian day — said that no single event was responsible for the extraordinary plunge in the pound on that occasion.

It suggested a combination of fragile market conditions, poorly-controlled algorithms and inexperienced staff led to the dramatic moments, which saw the pound plunge 6 cents against the dollar in less than two minutes.