The British pound slumped to a 22-month low against the Singapore dollar yesterday, after British Prime Minister Theresa May pulled the crucial parliamentary vote on the Brexit deal.
The possibility of a hard Brexit, or a messy divorce between the United Kingdom and the European Union, combined with rising political uncertainty, has battered the pound more than the stock markets.
"The pound is the shock absorber of Brexit uncertainty. Asian equities, on the other hand, are affected more by concerns over underlying global growth momentum, whether China is headed for a soft or hard landing, whether the trade war will escalate and whether global monetary tightening will continue for longer," said CIMB Private Bank economist Song Seng Wun.
Against the Singdollar, the pound sank 0.9 per cent from Monday to hit 1.7263 per Singdollar, before clawing back some ground to 1.7308 yesterday. The pound shed 1.2 per cent to 1.2562 against the US dollar, close to its lowest level since April last year.
FXTM research analyst Lukman Otunuga believes there is scope for the pound to sink further against the Singdollar in the near term, in the light of the higher likelihood of a no-deal Brexit.
Investors are most worried about a scenario where Britain crashes out of the EU without a deal as that could snarl supply chains and push the UK economy into recession.
"Market players are pondering whether UK Prime Minister Theresa May has the ability to renegotiate with Brussels to save the deal, if she will end up facing a leadership challenge or the possibility of a second Brexit referendum," said Mr Otunuga.
The pound's value against the Singapore dollar yesterday.
Mr Song said cancelling Brexit is the best-case scenario as it would mean business as usual after March 29 next year, but at this point, the possibility of a hard Brexit is higher.
Mr Ho Meng Kit, chief executive of the Singapore Business Federation (SBF), told The Straits Times yesterday: "Our businesses that have operations in the UK, including those trading with the UK, have been operating under uncertain conditions since the Brexit referendum.
"The delayed vote in the UK Parliament meant more uncertainties going into the endgame of this historic occasion for the UK... And no one has a clue what the UK's eventual relationship with the EU will be."
Mr Ho believes that the EU-Singapore free trade agreement (FTA) will not be affected by the delayed Brexit vote. The FTA is currently awaiting ratification by the European Parliament.
The EU-Singapore FTA and Investment Protection Agreement signed in October would open greater market access in innovation-related fields for companies in France, Singapore, the EU and Asean.
"Together with the European Chamber of Commerce in Singapore, SBF is gearing up to inform our members of the benefits of this EU-Singapore FTA. There is no Singapore-UK FTA at the moment. We can only start talks with the UK after Brexit is completed," said Mr Ho.