The pound approached a three-decade low set in the days following the Brexit referendum after U.K. Prime Minister Theresa May said she’ll begin the process of withdrawal from the European Union in the first quarter of 2017.
Sterling dropped to the weakest level since July 6, the day it reached its 31-year low of $1.2798, and slipped against all but one of its 31 major peers. Hedge-fund data showed speculators raised bets that the currency would fall. May told delegates at her Conservative Party’s annual conference that she’ll curb immigration, stoking speculation the nation is headed toward a so-called hard Brexit -- with limited access to the EU’s single market.
“Hard Brexit is a sell for the pound,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd in London. “I know the government line is that they don’t see a need to differentiate between hard and soft Brexit, but the market certainly does.”
The pound fell 1.1 percent to $1.2834 as of 4:42 p.m. in London, and earlier touched $1.2818, the lowest in almost three months. The Bloomberg British Pound Index, which measures the U.K. currency against major peers, slumped to the lowest since the data began in 2004.
Sterling briefly pared its losses after Purchasing Managers Index data showed U.K facotories had their best month in more than two years in September. Stocks of U.K. exporters rose, boosted by the weaker currency.
While the setting of a deadline for the Brexit trigger removes one risk that’s been hanging over U.K. businesses, the premier left unanswered most questions about what leaving the EU will actually look like.
Prime Minister May said she’ll invoke Article 50 of the EU’s Lisbon Treaty -- which triggers a two-year withdrawal process -- by the end of March. She also promised to control immigration while retaining access to the single market, though the details remain hazy. The pound has fallen 14 percent versus the dollar since the British people voted to quit on June 23, and just completed its worst quarterly run of losses since 1984, with five straight declines.
As the pound tumbled, U.K. export stocks rose on the weaker currency. The Stoxx Europe 600 Index was little changed and two-year Treasury note yields rose 0.02 percentage point to 0.79 percent -- far different from the day after the Brexit vote, when two-year Treasury yields tumbled as much as 0.28 percentage point and European stocks posted their worst drop since 2008.
Short positions, or bets on a weaker pound versus the dollar, outnumbered bullish wagers by 87,714 contracts last week, according to the Commodity Futures Trading Commission in Washington. It’s the first time speculators have raised bearish bets since Aug. 23, when they reached a record high.
“Despite the fact that there was a referendum, that there was a small majority in favor of leaving, that the prime minister had already said she’d trigger Article 50 at some point in the early part of next year -- the moves may imply that the FX market was thinking this would never happen,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA in London.
“All that uncertainty of when the U.K. leaves, what its place will be, is just pushed to the forefront again,” he said.