LONDON (REUTERS) - Sterling tumbled below US$1.20 to a near three-year low on Tuesday (Sept 3) as political uncertainty jumped after Prime Minister Boris Johnson looked set for a showdown with parliament over Britain's departure from the European Union.
Johnson implicitly warned lawmakers on Monday he would seek an election if they tied his hands on Brexit, ruling out ever countenancing a further delay to Britain's departure from the European Union.
That raised concerns that a general election would sow further uncertainty among investors at a time when the economy is already struggling with a growing global slowdown exacerbated by a trade war between Washington and Beijing.
Morten Lund, a senior currency analyst at Nordea said the pound's drop was because of the fear of elections and expects the British currency to weaken to a near-three year low of 93 pence per euro hit in early August.
"It's difficult not to see a route where this doesn't end in an election," Lund said.
Lawmakers will vote Tuesday on the first stage of their plan to block Johnson from pursuing a no-deal Brexit ahead of the Oct. 31 deadline.
Against the US dollar, the British currency fell 0.7 per cent to a low of $1.1971, the lowest since 1985, barring a flash crash low of $1.1491 hit in October 2016.
Today's drop puts the pound on track for a 6 per cent fall so far this year.
Against the euro, however, the pound's decline was much more limited, falling 0.2 per cent to a two-week low of 91.33 pence.