Pound falls on back of general election speculation

The pound fell to the lowest level in three weeks amid mounting speculation that a general election is imminent.

Boris Johnson said on Monday he did not want to go to the country but the reaction of investors pointed to an expectation that a national poll will be the only way out of the Brexit standoff.

Sterling tumbled by almost a cent against the US dollar and sold off sharply against the euro as election rumours swirled around the City before the prime minister’s speech outside Downing Street.

Johnson said he wanted to push ahead with his domestic agenda and he plans to leave the EU with or without a deal on 31 October “without an election, which I don’t want and you don’t want”. However, sterling remained down as uncertainty lingered and a government source said the prime minister was considering an election on 14 October.

Weak economic data showing UK 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.

The pound fell by 0.8% against the US dollar early on Monday evening, sliding to $1.2060 against the American currency, and was down about 0.7% against the euro to trade just below €1.10.

Analysts said the pound could drop further as the uncertainty created by an election could further damage the economy or make a no-deal Brexit increasingly likely but said any surge in support for remain parties could cause sterling to rally.

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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.”

However, some analysts remained sceptical an election could make matters any clearer. Chris Beauchamp, chief market analyst at the financial trading group IG, said: “Anyone who thinks that an election will solve the UK’s political crisis has not been paying attention over the past three years.”

Sterling has sold off sharply since Johnson’s elevation to No 10 in July, coming close to historic lows on the global money markets. The pound has tended to slump when the chances of a no-deal Brexit rise. The currency is down by about 5% on the US dollar this year and remains about 19% lower than on the eve of the EU referendum three years ago.



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