Pound extends slide as Brexit deadlock deepens

The pound fell 0.6 per cent to the day's low at US$1.3036.
The pound fell 0.6 per cent to the day's low at US$1.3036.PHOTO: AFP

LONDON (REUTERS) - The pound headed south on Tuesday (April 2) following British lawmakers' failure to agree on an alternative plan to Prime Minister Theresa May's Brexit deal and as the European Union's chief negotiator warned it would not re-negotiate the agreement.

At the start of London trading session, sterling extended losses to touch US$1.3025, down 0.6 per cent on the day. Against the euro, it dropped half a per cent to 85.92 pence .

May will chair a five-hour cabinet meeting on Tuesday in an attempt to plot a course out of the Brexit deadlock.

On Monday, the pound plunged more than 1 per cent as Britain's exit from the European Union remained deadlocked after parliament failed to agree on any alternative to May's divorce deal.

Hopes that the ongoing uncertainty would end in a softer Brexit than May's deal were dashed as attempts by lawmakers to vote on four alternative Brexit options were all defeated, fueling uncertainty for the currency in the short term.

Brexit minister Steven Barclay said after the results were announced that the default position was still that Britain would leave the EU on April 12 without a deal to soften the economic dislocation of an abrupt departure.

Economists say that would be the worst case scenario for the markets as a no-deal Brexit would sink the pound to levels not seen since the aftermath of the referendum vote in 2016.

"Sterling could very well hit the 1.18-1.20 area against the dollar and close to parity versus the euro," said Erik Norland, a senior economist at the CME group.

The pound fell 0.6 per cent to the Monday's low at US$1.3036, a stunning reversal from earlier in the day when it rallied as much as 0.7 per cent on some expectations that an agreement would eventually emerge, which would lead to some sort of a trade agreement between the European Union and the UK.

It was trading more than half a per cent higher before the outcome of the vote.

Against the euro, it weakened by a similar margin to trade at 85.90 pence.

Britain had been due to leave the EU on March 29 but the political deadlock in London forced May to ask the bloc for a delay. As things stand, Britain will now depart at 2200 GMT on April 12 - unless May comes up with another viable option.

Marshall Gittler, a strategist at ACLS Global, said he now considered a no-deal Brexit "a higher possibility, even though it's officially been ruled out, simply because I don't see any of the other endings as particularly possible."

Data earlier in the day also pointed to increased signs of nervousness among British manufacturers.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers' Index rose to 55.1 in March from 52.1 in February, above the 51 level forecast by economists polled by Reuters.

The survey showed that factories in Britain stockpiled for Brexit at a frenzied rate last month, pushing manufacturing growth to a 13-month high.