Sterling traded cautiously Monday, after slumping to a three-month low against the U.S. dollar, as investors wait to hear from U.K. Prime Minister Theresa May on her Brexit plans.
Fears of a "hard" Brexit from the European Union undermined the currency in Asia trading. However, May's spokeswoman said on Monday that talk of a "hard" Brexit is "speculation."
Even so, currency traders are worried how sterling will react when May outlines her plans on Tuesday, with newspapers suggesting the prime minister will prioritize immigration controls and bi-lateral trade deals with Britain leaving the EU's single market and customs union.
One expert explained that when May encouraged the pound negativity back in October, she failed to recognize or attempt to mitigate the impact of the slide.
The currency has seen a lot of volatility since the U.K. voted to leave the European Union. While the initial moves were dramatic, plunging from the highs of $1.50 U.S. to a 31-year low of $1.32, the currency fell a further 6% on October 7 on fears of a hard Brexit. The pound continues to remain under pressure at current levels of $1.20 U.S., down about 20% since June 23 – the day of the referendum.
Another expert said U.K. inflation is likely to rise too, above 4% on a 10-year horizon.
