The British pound GBP tumbled on Tuesday as investors bet Prime Minister Boris Johnson’s Brexit brinkmanship with the European Union could trigger a messy divorce that would sow chaos through the world economy and financial markets.
Sterling crashed through trading barriers, falling to an intraday low of $1.2120 in shallower overnight Asian trade, the lowest since March 2017. The pound has lost 3.6 cents since Johnson was named Britain’s new prime minister a week ago.
Ever since the 2016 EU referendum, the pound has gyrated to the rhetoric of the Brexit divorce: after the result was announced, it had the biggest one-day fall since the era of free-floating exchange rates was introduced in the early 1970s.
Since the 2016 vote, sterling has now lost 28 cents, one of the most significant falls for the currency in recent decades.
“We see more GBP weakness to come,” ING said in a note to clients. “The current sterling meltdown is in line with our view that GBP risks are heavily skewed to the downside given the Brexit uncertainty and rising odds of an early election (our base case).”
Johnson, who was hailed by U.S. President Donald Trump as Britain’s Trump, has promised to strike a new divorce deal with the European Union and to energize the world’s fifth-largest economy after what he casts as the gloom of Theresa May’s premiership.
On entering Downing Street on Wednesday, Johnson set up a showdown with the EU by vowing to negotiate a new deal and threatening that, if the bloc refused, he would take Britain out on Oct. 31 without a deal to limit economic dislocation.