The pound has fallen to $1.20 following reports that prime minister Theresa May was going to set out plans for a hard Brexit after previously appearing indecisive. The pound also sank to a two-month low against the euro, closing the day at 1.13 euros.
A small rise to close the day
In the address, the prime minster is set to state that Britain is prepared to quit the European Union single market. By the end of the day, sterling had grown slightly due to a Donald Trump interview with Michael Gove interview in The Times in which the president-elect said he hoped the United Kingdom and the United States could agree a new trade deal.
Since the referendum in June, the pound has fallen 20 percent on the dollar. While a weak pound makes British goods more competitive abroad, a weak pound means that imported goods are more expensive.
Analysts said that the fall in sterling was a reflection of market jitters over a potential hard Brexit which results in Britain removing itself from the European trading bloc. A Downing Street spokesperson described the reports that Theresa May intended to set out her plans for a hard Brexit was mere speculation, but the reports were corroborated by chancellor Phillip Hammond who warned the U.K. could cut business taxes if it is precluded from trading with European markets.
A plan of action
In an interview with German newspaper Welt am Sonntag, Phillip Hammond said: "If we don't have access to the European market Britain could suffer from serious economic damage, at least in the short term.
If this were the case, we would be forced to change our economic model to regain competitiveness. The British people aren't going to lie down and say too bad. They will fight to ensure that Britain is competitive on the international stage".
Economic analyst Kathleen Brooks of City Index said that reports Britain was heading for a hard Brexit were "like kryptonite" to city traders. "The FX market has spoken and, as of Sunday night, it is not confident that prime minister Theresa May can deliver a confident Brexit plan," Brooks said.
