Pound falls further against the euro and the dollar – BBC News
Image copyright AFP The pound extended losses against both the dollar and the euro in late US trade on Tuesday, but recovered slightly in early Asian trade.
Against the dollar, the pound had fallen more than 2%, at one point dropping below $1.21, while against the euro it fell below 1.10.
It has now fallen about 19% against the dollar since the referendum, to lows not seen since 1985.
One analyst said it was “trading like an emerging market currency”.
At one point the pound hit $1.2088 against the dollar on Tuesday evening and against the euro it touched 1.0939.
In the first hour of trade in Asia it was back above $1.22, a rise of 0.8%.
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Neil Wilson from ETX Capital said the mood around the pound had been extremely negative in recent days and that it was “now trading like an emerging market currency.”
He also said comments by a senior Bank of England official had not helped.
Michael Saunders, a member of the Bank’s interest rate-setting committee, said earlier that the pound could still “fall further”, but that the recent sharp drop was not an immediate cause for concern.
Bank threat
The comments were interpreted as a signal that the Bank could keep interest rates lower for longer.
Earlier in the day, some traders had said sterling came under pressure from reports that US banks Citi and Morgan Stanley could move staff out of London, adding to worries about foreign investment leaving the UK.
“It really isn’t terribly complicated. If we are outside the EU and we don’t have what would be a stable and long-term commitment to access the single market then a lot of the things we do today in London, we’d have to do inside the EU 27,” said Rob Rooney, chief executive of Morgan Stanley International.
Traders also pointed to leaked documents, warning that a withdrawal from the EU single market could cost the Treasury more than 66bn a year, as a reason for the drop.
Image copyright Reuters Analysis: Kamal Ahmed, BBC economics editor
Why does the fall of the pound matter?
On the upside, it matters for exporters which are boosted as their goods are far cheaper on foreign markets.
It matters for multinational companies like pharmaceutical firms which earn much of their income in dollars. It matters for the tourism industry in the UK, as foreign visitors flock here for bargains and good value holidays.
On the downside, it matters for tourists travelling abroad who will find everything they buy much more expensive.
It matters for the food and fuel this country imports as it becomes more expensive. It matters for inflation, as the rise in import costs feeds through to businesses and the High Street.
And remember, it does not need much of a rise in inflation to wipe out real income growth which at present is running at around 2%. If real incomes start falling, that is when the fall in sterling becomes a truly political issue.
Because the pound in your pocket will actually be worth less.
The falls in the pound on Tuesday pushed the FTSE 100 to an intra-day high, but it closed the session 0.4% lower at 7,070.88 points.
Many of the companies in the index generate most of their revenues abroad, and a weaker pound means overseas revenues are worth more when they are converted back into sterling.
The index broke its last intra-day high from 27 April 2015, when it reached 7,122.74 points, but could not hold on to beat that day’s record closing high of 7,103.98.
Read more: http://www.bbc.co.uk/news/business-37625067