British pound sinks to two-year low, extending tumble against Singdollar amid fears of no-deal Brexit

The sterling was at its strongest against the Singdollar in February this year, when one Singdollar could buy 0.5575 pound.
The sterling was at its strongest against the Singdollar in February this year, when one Singdollar could buy 0.5575 pound.PHOTO: REUTERS

SINGAPORE - The British sterling took a pounding on Tuesday (July 30) as it sank to a two-year low, extending its tumble against the Singapore currency.

Analysts expect the trend to continue for a few more months.

On Tuesday, one Singdollar could buy 0.599 pound, which is 4 per cent more compared with 0.5762 pound at the start of the year (2019).

The sterling was at its strongest against the Singdollar in February this year, when one Singdollar could buy 0.5575 pound.

Analysts foresee the slide in the sterling to continue till towards the year's end when it will start to rise.

CIMB Private Banking economist Song Seng Wun said the markets are reacting to the hardline Brexit approach taken by the new British Prime Minister Boris Johnson, who assumed office on July 24.

Since then, the  sterling had dropped 6.7 per cent, Mr Song noted, pointing out that Mr Johnson, who seems intent on taking Britain out of the European Union, had formed a Cabinet that is working towards a no-deal Brexit.

"The risk of a no-deal Brexit has increased. The market does not like any risk at this juncture," he added.

Mr Song said the British economy had held up better than expected since "the Brexit mess". He pointed to low unemployment figures and stable wage growth as healthy indicators of the economy.

 
 
 

Property and housing markets may have soft spots, but they "have not tanked", he added.

Mr Saktiandi Supaat, regional head of foreign exchange research and strategy at Maybank, said: "We expect GBP-SGD to potentially break 1.65 and head lower in the short-term but eventually rise back towards 1.70 by the end of this year on the back of a weaker Singdollar and GBP positive developments."

Mr Saktiandi also said the EU may sit up and be more willing to renegotiate with Mr Johnson if he could convince more British Members of Parliament of the benefits of Brexit. "At this stage, hard Brexit fears will ease and soft Brexit hopes will possibly take over, and this will be positive for the GBP."

Mr Barakath Ali, first vice-president of the Money Changers Association (Singapore), said there has been no significant increase in the sale of the British currency.

Mr Barakath, who is also managing director of Aramex International Exchange at High Street Centre in City Hall, said: "Buyers are on the sidelines, not rushing to buy. They are anticipating GBP rates to drop further."

The last time the British pound nosedived was in October 2016 when it shed 6 per cent to S$1.666.

Possible causes of the unexpected drop included rogue computer trades, an accidental "fat-finger" transaction and tough comments from then-French president Francois Hollande on Brexit negotiations, said British newspaper The Guardian.

Fat-finger transactions are caused by pressing a wrong computer key when inputting data.