The pound is currently trading at a rate of 1.1121 against the euro according to Bloomberg at the time of writing. But traders are now getting the jitters as the prospect of a no-deal Brexit is becoming more and more likely as the days go by.
The drop in value follows hopeful summer where the pound rose four percent against the dollar since June.
But the pound has been unceremoniously jolted by the news Boris Johnson’s Government is quite literally looking to break international law in a “very specific and limited way” according to Northern Ireland Secretary Brandon Lewis.
The Internal Market Bill has caused an uproar, prompting a row over elements which could allow ministers to modify the already ratified Withdrawal Agreement.
It will set out how powers currently held by the EU will be shared out once the transition period finishes.
No-deal Brexit: Boris Johnson has made it clear he is willing to break international law
No-deal Brexit: Boris Johnson has refused to negotiate with terms the EU has put out
The Government’s most senior lawyer, Sir Jonathan Jones, has resigned from his role in light of the bill.
Scotland has already confirmed it will not consent to the law.
The bill has also been attacked by the Welsh Brexit minister, Labour’s Jeremy Miles, who accused the government of “stealing powers from devolved administrations”.
He added: “This bill is an attack on democracy and an affront to the people of Wales, Scotland and Northern Ireland.”
What will Brexit mean for the pound?
The pound has fallen after the Prime Minister said he is willing to let talks fail rather than compromise on his principles.
Boris Johnson said on Monday that if a withdrawal agreement was not reached with the EU by October 15 then both sides should “move on”.
Until recently, derivatives markets suggested traders were not worried about the looming December 31 deadline, when a standstill agreement expires and the UK leaves the EU’s single market and customs union.
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Paul O’Connor, a fund manager at Janus Henderson Investors said: “Currency markets have paid little attention to Brexit news flow in recent months, with attention focused instead on a wide range of competing global macro, policy and political developments.
“As the focus shifts back to the negotiations, investors will be reminded that the most likely outcomes here are for either a bare-bones Brexit or a ‘no-deal’ exit, neither of which look constructive for sentiment on UK growth and assets.
“The upside in sterling seems limited, while this fog of uncertainty overshadows the UK economy and fiscal policy remains on a tightening path.
“It would be no great surprise if today’s drop in sterling was the start of a more meaningful move lower.”
No-deal Brexit: Michel Barnier has expressed exasperation at the UKs unwillingness to budge
Stephen King, senior economic adviser at HSBC Holdings Plc, said on Bloomberg Television: “If you’re a person who really wants to push Brexit through, you might think that COVID-19 provides the kind of perfect camouflage to hide the costs of a no-deal Brexit, because COVID-19 is so damaging.”
What Brexit will mean for the pound is down to what kind of Brexit we get.
Abrupt and major changes will take place immediately in the event of no-deal.
If a deal between the EU and the UK is not brokered before the transition period ends in December, then the UK will drop out of both the customs union and the single market – putting significant tariffs on goods entering and leaving the UK.
Other important matters such as cooperation on security and terrorism, education and science risk being left up in the air if no detailed agreement is reached on future EU-UK relations.
A deal favourable for the UK and the one which opens the door for new economic partnerships would obviously boost the pound – as was seen after the announcement of the Withdrawal Agreement.
But with the Withdrawal Agreement now also in jeopardy, the pound looks ready to weaken further unless a Brexit miracle takes place in the coming months.