On Tuesday, Britain’s battered pound sank to its 11-month lows against the euro as single currency climbed the board, investors in search of relative safety were driven elsewhere by political uncertainty.
The pound was flat against the battered dollar at $1.2926.
On the other hand, the euro has increased from weakness in both currencies.
For the first time in 2-1/2 years, it crossed the $1.20 threshold, benefiting from the broad risk-off move as geopolitical tensions intensified following a missile launch over Japan from North Korea which dented the dollar.
Political uncertainty in Britain has also boosted the euro, with the Brexit hitting the growth of the UK and keeping the pound weak whole the growth picks up in the euro zone. On Tuesday, it dropped to 93.07 pence per euro, the currency’s lowest starting October.
“You’ve got two politically plagued currencies offsetting each other – you’ve got Brexit for sterling and you’ve got Trump and geopolitics for the dollar,” said Viraj Patel, the ING currency strategist.
“So in effect, the euro is the de-facto political haven. Cable (sterling/dollar) is caught in the crossfire of what’s happening in the euro and dollar,” he continued.
Patel stated that the weakness of the pound against the euro had become “a bit excessive”, and that risks of the Brexit were already priced in.
Analysts say that the recent moves of the sterling against the euro and the dollar have mainly been a result of broader shifts in the dollar as investors are disturbed about the capacity of the U.S. administration to follow through on its economic agenda.
With the chief negotiator of the European Unions saying that he was concerned at the sluggish progress of the talks, investors had their focus trained on the third round of Brexit negotiations which started on Monday.
The British government has prepared a series of position papers that have described compromises over some of the matters likely to hinder progress in this year’s talks, but European Union officials say Britain needs to resolve its divorce bill with the bloc before a trade agreement can be considered.
“We’ve been seeing a bit of back-and-forth about the requirement to finalize divorce terms before negotiating a trade deal or beginning that negotiation,” said Alexandra Russell-Oliver, a Caxton FX analyst.
“That could put some downward pressure on the pound.”