Pound hits three-year dollar low in Brexit turmoil

Pound hits three-year dollar low in Brexit turmoil

"We would expect to see the pound initially fall below US$1.20, and then toward US$1.10 if the government wins a majority and seeks no deal, if the European Union does not back down on the backstop".

Sterling dropped 0.3% to $1.2130 in early London trading, while against the euro it weakened 0.2% to 90.52 pence. It was down 0.4% on the euro (GBPEUR=X) at just over €1.10.

Weak economic data showing United Kingdom manufacturing output falling at the fastest rate in seven years in August put further pressure on the pound as the threat of a no-deal Brexit dragged down business activity across the country. Rising fears of a no-deal Brexit should encourage investors to offload Sterling at any given opportunity.

Market experts said an election would spark another collapse in the value of the pound, which could hit levels last seen under Margaret Thatcher in the 1980s, excluding the 2016 "flash crash".

No 10 has threatened a snap general election on 14 October if MPs succeed in seizing control of Commons business.

David Cheetham, chief market analyst at the financial trading firm XTB, said: "The prospect of an election also offers not just the avoidance of no deal but the possibility, however small it may seem at present, of a surge in support for remain and growing calls for a second referendum".

"We could feasibly see 1.15 (US dollars) or even 1.10 in the coming weeks if traders decide to move against the pound".

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He added: "The outlook for sterling may well worsen if there is an election and will certainly deteriorate if it's a no-deal".

David Cheetham, chief market analyst at XTB, said the figures "raised alarm bells" for United Kingdom industry, but said the pound had already been falling on Monday morning.

"But it does suggest traders are increasingly seeing no positive outcome in the near-term".

In February 1985, the pound slid to $1.05 thanks to a remarkably strong dollar.

Mr Reagan oversaw a series of tax cuts and spending rises in a bid to revive the United States economy, pushing up long-term interest rates in the process and attracting investment.

Sterling fell versus the dollar on 2 September.

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