Pound hits new two-year little as no-deal Brexit rhetoric hardens

The pound has fallen against the US dollar to a different two-year low on Monday as markets reacted to a hardening tone from Boris Johnson's new Government over the likelihood of a no-deal Brexit.

Cabinet minister Michael Gove wrote within the Sunday Times that a “no-deal is now a very real prospect” and the Government is “working on the assumption” of a no-deal Brexit.

New Chancellor Sajid Javid said there would be extra funding for Border Force officers and a “War Cabinet” has been produced by Mr Johnson to pay attention to Brexit and no-deal preparations.

And new Foreign Secretary Dominic Raab said on Monday the only way for any deal to become achieved is going to be if the EU changes its position.

In reaction to this news, the pound fell 0.57% against the dollar to 1.2313. Against the euro it had been down 0.54% to at least one.1070, although the eurozone is having its very own problems, with recent manufacturing data showing the sector is shrinking.

Historically, the euro is constantly on the trade at lower levels compared to pre-referendum levels, but the predicted temporary collapse some were expecting against the pound hasn't materialised.

But using the US economy performing strongly, the pound has suffered much more.

Since former PM Theresa May announced her resignation after May to Monday, the pound has fallen 3.4%.

David Cheetham, chief market analyst at XTB, said: “Brexit remains the dominant theme with a noticeable harshening of the rhetoric in recent days raising concerns amongst traders.

“UK Foreign Secretary Dominic Raab has captured the tone from the latest position in the Government in saying that the EU will have to move on Brexit in remarks that have done little to help the pound's plight.

“Despite this posturing, significant hurdles would need to be overcome for a no-deal Brexit to be delivered but simply the expressed intention to pursue this path is enough to weigh around the pound for the moment.”

Neil Wilson, chief market analyst at Markets.com, added: “The fresh push to the downside follows an escalation in no-deal risks. Specifically, the marketplace has reacted to Michael Gove stating that the federal government is 'working on the assumption' of the no-deal Brexit.

“It increasingly appears like the Boris Johnson Government is embarking on an overt policy of brinkmanship, specifically designed to take the Nigel Farage Brexit Party out of the equation in front of a probable election this autumn, and ultimately with the purpose of forcing the EU back to the negotiating table.”

Nigel Green, founder and CEO of monetary advisory firm deVere Group, said the falling pound will have an impact on holidaymakers wherever they travel.

He explained: “The pound continues to be fallen against the euro each year because the referendum – it is now worth around 15% under prior to the vote.

“It's not only those going to the eurozone who are in for a shock either. Overall, the pound is the worst-performing major currency within the last 3 months, meaning nearly every destination is now more expensive of computer was for Brits.”

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