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David David and Michel Barnier are meeting for the next round of Brexit talks
Britain’s currency tumbled to 1.075 against the euro on Tuesday morning, as experts said markets appear to think Brexit will turn out to be a “shambles”.
It comes as the third round of Brexit talks between Britain’s David Davis and Michel Barnier begin.
The chief EU negotiator has said the UK must end its ambiguous positions if Britain wants to have a “serious” discussions.
The pound has been hit in recent weeks, amid concerns Theresa May could be replaced as Tory leader and prime minister at the 2017 Conservative Party Conference, creating fresh political turmoil.
A number of economists have now forecast the pound could reach parity with the euro by the end of 2017.
The pound is at new post-Brexit lows against the euro
Kathleen Brooks, research director at City Index, said: “We continue to think that the outlook remains bleak for sterling, especially after EUR/GBP surged above 0.92 last week and the trade weighted pound also dropped to a fresh low.
“Even if May does stay on for another two years’, this is unlikely to sustain a pound bounce.
“Sterling hasn’t had a strong reaction to “good” political news since June 2016, suggesting that the FX market is still expecting Brexit to be a shambles.
“However, a weak pound is good for the FTSE 100, so we could see some of last week’s downward pressure on the FTSE 100 bluechips lift in the next few weeks if we continue to see GBP declines as we expect.”
Hussein Sayed, chief market strategist at FXTM, added: “Sterling traders are awaiting the results of a new round of talks between the UK and the EU.
“So far, there are no signs of progress and differing opinions of Brexit Secretary David Davis and his EU equivalent Michel Barnier suggest there’s a lot to be done to bring both sides into an agreement.
“Although the pound seems oversold, it is likely to remain under some pressure until positive developments materialise.”
The euro has strengthened in recent weeks amid expectations the European Central Bank could soon scale back its massive money-printing programme.
Head of the bank Mario Draghi last week spoke at Jackson Hole with markets looking for guidance on policies.
The ECB chief gave little away, but the eurozone currency has continued to strengthen.
Ms Brooks added: “This could be a pivotal week for the euro, it rallied more than one per cent after Draghi spoke on Friday even though neither Yellen nor her counterpart at the ECB mentioned monetary policy and instead focused on financial regulation and the importance of free trade.
“You could argue that Draghi spurred the euro rally through his failure to mention current euro strength, but we think the move on Friday was largely down to positioning and the single currency may have rallied no matter what Draghi said.”
More to follow…