Pound sterling falls to fresh 31-year low, briefly trading below $1.27

The pound sterling continued to get punished Wednesday, building on its recent losses that have been sparked by worries about a potential “hard Brexit” that might hammer the U.K. economy.

The British currency changed hands at $1.2720, down from $1.2727 late Tuesday in New York. It was touching levels last seen in the first half of 1985, as it traded as low as $1.2685 earlier Wednesday, according to FactSet data.

Brexit jitters “may be bone deep,” ensuring that the pound remains depressed until the U.K. government invokes Article 50, said Lukman Otunuga, an FXTM analyst, referring to how officials would trigger the process of exiting the European Union.

“Although sentiment towards the U.K. economy continues to be uplifted as domestic data repeatedly beats, the persistent uncertainty and unknowns over how the Brexit negotiations will take place have seriously soured investor appetite towards the sterling,” he said in a note.

Prime Minister Theresa May helped start the selling in the pound by announcing on Sunday that the U.K. would invoke Article 50 by the end of March. May also indicated she would pursue a clear break from the bloc, known as a “hard Brexit.”

Against the euro, the pound was also losing ground, trading at €1.1340. That’s after it fell as low as €1.1309 earlier Wednesday — a five-year low, according to FactSet. The euro has been bolstered by a report Tuesday that the European Central Bank is likely to gradually wind down bond purchases before the scheduled March 2017 conclusion of its quantitative-easing program.

In other currencies trading, the yen remained weaker against the dollar. The greenback was getting support from higher U.S. Treasury yields amid worries about that potential cutback in the eurozone’s monetary easing.

The dollar was changing hands at ¥102.79, down was from ¥102.90 late Tuesday in New York.

The yen weakened against the dollar as some short-term players continued to unwind their speculative positions after building up these bets on a stronger yen, analysts said.

“Investors found it difficult to keep taking yen-buying positions,” said Shinsuke Sato, head of FX trading group at Sumitomo Mitsui Banking Corp.

Specifically, a rebound in the U.S. manufacturing sector in September in a report from the Institute for Supply Management Monday prompted some investors to exit from these yen positions, according to Sato.

Currency market investors are now closely watching for U.S. data such as non-manufacturing ISM index figures and the ADP employment report later Wednesday, for hints about when the Federal Reserve may raise rates.

Nomura Securities chief FX strategist Yunosuke Ikeda said in a note that a weak ISM figure would cloud investors’ outlook for a Federal rate increase in December. “I’m interested to see if economic indicators like these are going to regain their clout on the market,” at a time when investors are apparently becoming immune to the scenario of a Donald Trump victory in the U.S. presidential election, he said.

The WSJ Dollar Index, a measure of the dollar against a basket of major currencies, was down 0.1% at 86.96.

Source: MarketWatch