Britain’s pound has taken a sharp drop in early Tuesday trading, touching an eight-week low against the dollar, after U.K. lawmakers set the stage for Brexit talks to begin.
Today the pound stood at $1.2110 against the U.S. dollar and below €1.14 against the euro. It wiped out all yesterday’s gains, made on the dollar’s weakness.
According to Deutsche Bank economists, the pound will plunge to $1.14 by the end of June, which would be a 31-year low.
Triggering Article 50
The British Pound underperformed due to the U.K. parliament that passed the Brexit bill on Monday, giving Prime Minister Theresa May the authorization to activate Article 50 of the Treaty of Lisbon. Triggering Article 50 continues the formal process of the country’s exit from the European Union.
“Sterling has dropped like a rock. Traders have finally woken up to the reality that Theresa May is heading towards hard Brexit negotiations with an attitude that she has nothing to lose,” said Naeem Aslam, chief market analyst at ThinkMarkets UK.
The complex issue of Brexit has been further affected by the additional twist of the call for a second Scottish Independence Referendum.
The currency is down about 18 percent against the dollar since the EU referendum in June.
Bank of England meeting
Another factor that could influence the UK pound is the Bank of England’s monthly policy decision, which will be delivered on Thursday, March 16 at 12.00 G.M.T.
The BoE meeting on Thursday is likely to result in no-change policy, as raising rates could constrain growth. Since interest rates have a profound effect on currencies, continuing to keep them down could keep the pound weak, especially against nations where interest rates are being lifted more aggressively.
The lower pound is proving to be good for UK exports but inflation which is already showing signs of a significant revival could be boosted further.