Published On: Mon, Aug 12th, 2019

Pound tanks to LOWEST level against euro in 10 years amid warning of UK recession


Sterling plunged to 93.26 pence against the euro, late on Sunday, the lowest it has been since October 2009, not considering the flash crash in October 2016. It also fell to a 31-month low of $1.2015 versus the dollar. But on Monday Pound Sterling was recovering as Brexit uncertainty continues to bite amid looming fears of a no deal exit from the EU on October 31. Second-quarter GDP unexpectedly contracted in June, raising concern a recession was looming in Britain.

This put pressure on sterling and British government bond yields, while the spread between 10-year Gilt yields and US Treasury yields shrank to its lowest since August 6. 

Kamal Sharma, forex strategist at Bank of America Merrill Lynch said: “A significant compression of UK yields and Brexit undertones” was the reason why Sterling had dropped against the euro. 

Desrcibing it as a “double whammy effect”, he said it a “natural breeding ground for sterling losses”. 

Neil Wilson, chief market analyst at Markets.com, said: :The combination of a slowing economy, global economic weakness, the increasing chance of a cut to interest rates and the risk of a no deal Brexit will continue to anchor sterling. 

“No deal talk is the biggest concern – remove that and we get a big bounce even with the economic and monetary risks.”

Analysts said low liquidity and reports Ireland would not renegotiate the Brexit backstop at a meeting with British Prime Minister Boris Johnson later this month also weakened sterling by exacerbating fears Britain would leave the EU without a deal in place in October.

Mr Johnson has accepted an offer to meet Irish leader Leo Varadkar to discuss Brexit and the Northern Irish backstop. A meeting could take place before a G7 summit in France later in August.

The backstop, part of the withdrawal agreement that former Prime Minister Theresa May struck in November,  has been a sticking point in efforts to prevent a disorderly British exit from the EU.

READ MORE: Pound to euro exchange rate: Sterling ‘shrunk’ since December 2012

Sterling has dived 6.9 percent against the euro over the past three months – with £1 currently valued at 1.08 euro – as investors worry about the impact of a potential no-deal Brexit.

The news comes as package holiday company On the Beach issued a profit warning after it was hit by the plummeting value of the pound. 

The company said the diving value of sterling against the euro since May has forced it push up its holiday prices compared to competitors.

The package holiday operator said it does not hedge its exposure to currency changes, unlike larger travel industry rivals, but instead alters prices dependent on the value of the pound.

The group said that, despite a strengthening in demand over the second half of the year, it has struggled against competitors who have been able to keep prices lower.

It said it has been difficult to maintain margins and keep market share at the same time, and therefore expects to miss full-year performance targets.

Nevertheless, the company said it has made “excellent progress” towards its growth strategy, which has seen the company invest in digital recruitment after moving its headquarters to Manchester at the end of 2018.

It added that it expects to deliver revenue growth on its international platforms during the second half of the year. 



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