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Sterling falls in Asia over hard Brexit fears

Sterling slid to three-month lows in Asia on Monday with investors spooked anew by concerns over Britain’s divorce from the European Union, while US policy uncertainty lingered ahead of President-elect Donald Trump’s inauguration.

Regional share markets were hesitant. MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.5pc, Japan’s Nikkei lost 0.6pc and Shanghai shed 1.4pc.
Spread betters pointed to likely opening gains for UK shares, but a drop for German equities.

All the early action was in currencies where the pound sank as low as $1.1983, depths not seen since the flash crash of October, having finished around $1.2175 in New York on Friday. It was last down 1.2pc at $1.2032.
Dealers said the market was reacting in part to a report in the Sunday Times that UK Prime Minister Theresa May will use a speech on Tuesday to signal plans for a “hard Brexit”, quitting the EU’s single market to regain control of Britain’s borders.

Investors have been worried such a decisive break from the single market would hurt British exports and drive foreign investment out of the country.
“It is impossible to say by how much a hard Brexit could weaken GBP, but we do not believe that a further 5-10pc depreciation should be regarded as an extreme scenario when set aside the UK’s high dependence on foreign capital,” wrote analysts at JPMorgan in a note.

The flight from sterling benefited the safe-haven Japanese yen, with the pound down 1.5pc to 137.34 yen while the US dollar dipped to 114.17 Against a basket of currencies, the dollar was up 0.3pc at 101.510.
The euro pared initial losses to stand at $1.0611.

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