UK currency volatile as investors try to gauge Brexit risks

An anti Brexit protester waves the flags of European Union and Britain during a rally outside Downing Street in London, Saturday, Aug. 31, 2019. Political opposition to Prime Minister Boris Johnson's move to suspend Parliament is crystalizing, with protests around Britain and a petition to block the move gaining more than one million signatures. (AP Photo/Alastair Grant)
In this picture taken Saturday, Aug. 31, 2019, passengers arrive at Edinburgh Airport, in Edinburgh, Scotland. In Scotland, there's vocal disgruntlement with Brexit and political machinations that are pushing Britain ever-closer to an abrupt and messy departure from the European Union. (AP Photo/Francois Mori)

LONDON — The pound on Tuesday touched its lowest level against the dollar since 1985, excluding a brief "flash crash" in 2016 that may have been caused by technical glitches, as international investors fret over a political showdown over Brexit this week.

The British currency fell as low as $1.1960, down almost a cent on the day before recovering somewhat to $1.2060. Not counting the brief plunge in the autumn of 2016, in which the currency fell to $1.1789 for about two minutes before bouncing back, the pound on Tuesday touched its lowest point in 34 years.

Brexit is facing a crucial few days as lawmakers challenge Prime Minister Boris Johnson's insistence that the U.K. will leave the European Union on Oct. 31 even without a deal.

Parliament is returning from its summer recess Tuesday with a key piece of legislation on its agenda that would see it take control of the Parliament's agenda. If that passes, the lawmakers are expected to vote to block the government from bringing the country out of the EU without a deal, which many experts say would cause chaos for people and businesses as border checks and tariffs resume, among other things.

Johnson has tried to crack down on members of his Conservative Party who oppose his Brexit plans, warning them they would be expelled from the party if they supported parliamentary efforts to block or delay Brexit. Johnson's office also says he would call an early election, with uncertain consequences.

"Markets are extremely negative about the consequences of a no-deal scenario," said Alex Kuptsikevich, analyst at online brokerage FxPro. "The pound will have a hard time if the (lawmakers') initiatives fail."

The pound has become the main indicator of international investors' confidence in Britain's economy. Its fall effectively makes British people poorer as they can spend less on travel and foreign goods, which become pricier.

But it also helps British exporters as well as the many multinationals that are based in the country but make most of their money in other countries and currencies. Oil companies like Shell and BP make their money in dollars around the world, converting that back to pounds when they report earnings, so the pound's drop is generally a boost to them. It's a similar story for global bank HSBC, mining firms Antofagasta and Rio Tinto and consumer goods producer Unilever.

That's why the main stock index, the FTSE 100, has actually held up well in the face of the Brexit chaos. While the pound is down almost 7% this year, the stock index is up 8%. Stocks focused on Britain's own economy, however, have fared more poorly.

The fall in the pound can also make British companies more vulnerable to takeovers from abroad as they effectively become cheaper to buy. Foreign takeovers of British companies jumped after the June 2016 Brexit referendum, when the pound fell around 10% in a day from over $1.500. They have increased again this year as the pound slipped again.

___

Follow AP's full coverage of Brexit and British politics at: https://www.apnews.com/Brexit

People also read these

Asian stocks markets retreat after Wall Street...

Dec 23, 2016

Most Asian stock markets have declined in thin trading ahead of the Christmas holiday after Wall...

Global markets mixed after Wall Street loss

Dec 23, 2016

Asian markets are mostly lower while Europe has gained in early trading ahead of the Christmas...

China starts 2017 engulfed by smog, issues...

Jan 2, 2017

Beijing and other cities across northern and central China are shrouded in thick smog, prompting...

DEA opens shop in China to help fight synthetic...

Jan 6, 2017

The U.S. Drug Enforcement Administration plans to open a new office in southern China and, at...

A look at how Trump might shake things up in Asia

Jan 16, 2017

Donald Trump has offered views on U.S. relations with Asia that could indicate radical shifts in...

About Us

Frontal Report is an emerging leader in all forms of media. We aim to be the leading news brand for readers around the world.

Contact us: sales[at]frontalreport.com

Subscribe Now!