The pound dropped to its weakest level in almost 20 months and government bonds rallied as U.K. Prime Minister Theresa May said she was stepping up preparations for no Brexit deal.
Sterling fell more than 1.5 per cent against the dollar as May confirmed the vote in Parliament on her Brexit deal will be delayed, without giving a new date. She will try to address lawmakers’ concerns over the Irish border with European Union leaders as she warned no deal would cause short-term economic damage.
The move by May means an EU summit later in the week will be the next focus for markets. Traders had been planning to stay late at the office Tuesday in anticipation of significant price swings on the vote.
“This is very strong risk-off move,” said John Wraith, head of U.K. macro rates at UBS Group AG. “The market clearly believes she will not get anything material enough from the EU to turn that scale of opposition around, so even if the vote is delayed it’s going to end in the same way - with a big defeat for the Govt, and the end of the Withdrawal Agreement - but now it will happen even closer to the date of the cliff edge.”
The pound slid 1.6 per cent to US$1.2526, after touching the lowest level since April 2017. Sterling also tumbled 1.6 per cent to 90.84 pence per euro, its weakest since Aug. 29.
The yield on 10-year gilts dropped seven basis points to 1.19 per cent, the lowest since July 20. Over in the money markets, implied yields on short-sterling contracts fell, leading to a flatter curve, a sign that traders are pushing out the prospect of rate increases by policy makers. The FTSE Index of shares fell 0.5 per cent.
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