Pound tumbles on heightened Brexit fears

The pound took a hammering on Tuesday, falling to fresh lows against the dollar and euro on renewed fears that the UK will crash out of the European Union without a deal this autumn.

In the last hustings between Boris Johnson and Jeremy Hunt on Monday night, the Conservative Party leadership candidates and would-be prime ministers refused to support the Northern Ireland backstop, which was a core part of Theresa May’s deeply unpopular Withdrawal Agreement. Both said they would either remove it or quit the bloc without a deal.

With Brussels long-insisting it will not drop the backstop, markets took it as further proof that a no-deal Brexit is increasingly likely.

By midday, the pound had tumbled to $1.242 against the dollar, its lowest point since April 2017, and to a fresh six-month low against the euro of €1.107.

The falls came despite official economic data showing UK wage growth at a near 11-year high and unemployment holding steady at record lows.

Craig Erlam, senior market analyst for the UK and EMEA at Oanda, said: "While unemployment was unchanged and the claimant count rose, wages were strong, which if sustained - and no-deal can be avoided - would surely strengthen the case for no rate cuts, and maybe even rate hikes.

"Unfortunately, traders are finding it hard to look past no-deal risks or at the very least a delay and hard Brexit, which continues to weigh on the currency."

Stephen Innes, managing partner at Vanguard Markets, said: "Sterling has been under intense selling pressure after both candidates toughened their stances on the Withdrawal Agreement and Irish backstop, which suggests the pound will remain extremely vulnerable if the no-deal Brexit continues gaining momentum."