LONDON (Reuters) – Sterling fell one percent on Friday, heading towards a 20-month low, as concerns grew that Prime Minister Theresa May’s failure to win key concessions from the European Union to salvage her Brexit deal could plunge the economy into chaos.
May’s failure to win certain legally binding assurances from the EU on her deal for Britain to exit the bloc was cast as a humiliation by opponents after she exasperated other leaders with a stilted defence of Brexit.
“Clearly May is having a tough time at the negotiations, judging from her comments,” said a currency strategist at a consultancy.
The trip has not gone down well in currency markets, with the pound weakening nearly 1 percent to a day’s low of $1.2530. It hit a 20-month low of $1.2477 on Wednesday.
“Sentiment is very cautious because of the political uncertainty,” said Esther Maria Reichelt, an FX strategist at Commerzbank in Frankfurt.
After surviving a no-confidence vote by her Conservative Party on Wednesday, May asked EU leaders at a summit in Brussels for political and legal assurances that she said could convince the British parliament to approve her deal.
But German Chancellor Angela Merkel and French President Emmanuel Macron ruled out any reopening of last month’s treaty aimed at ensuring a smooth exit on March 29.
The British currency also weakened against the euro at 89.87 pence.
On a weekly basis, the pound is set for its biggest drop in seven weeks against the dollar as the currency markets digested the tough task that May has ahead of her to win extra assurances from the EU over the Brexit deal agreed on Nov. 25.
Sterling remains near the bottom of its recent range and traders say a 20-month low of below $1.25 hit on Wednesday will act as a temporary support for the battered currency unless there is further clarity on the outcome.
Though most investors think the British parliament will eventually back a “softer Brexit” rather than a complete separation from the EU, traders have shied away from taking big bets in the currency markets.