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Pound falls steeply as Brexit resignations rock UK government | |
(35 minutes later) | |
The pound has fallen steeply against major international currencies after Theresa May’s government was rocked by multiple resignations over her Brexit deal. | |
Sterling fell from above $1.30 to $1.28 against the US dollar by midday on Thursday, a drop of about 1.5%. Against the euro, sterling fell by 1.5% to €1.1317. | |
Markets were reacting to chaos on the government benches as senior Brexit-backing ministers objected to a draft withdrawal agreement with the EU that the prime minister presented to the cabinet on Wednesday afternoon after months of negotiations between British and EU officials. | |
Dominic Raab and Esther McVey, the Brexit secretary and the work and pensions secretary respectively, resigned on Thursday morning, saying they could not support the draft deal. They were joined by the junior ministers Suella Braverman and Shailesh Vara. | |
The share prices of the UK’s mid-cap companies on the FTSE 250 slumped by about 1% as investors reduced their exposure to the British economy. However, the FTSE 100, whose constituents earn the majority of their profits in foreign currencies, rose by about 0.1% in morning trading. | |
Andy Scott, an associate director at JCRA, a risk management consultancy, likened the chaos to a Shakespearean tragedy. “These developments cast a significant doubt over whether the agreement reached will ever make it to a political declaration, significantly increasing the risk that the UK leaves the EU without a deal,” he said. | |
Currency analysts at BNP Paribas calculate that sterling is undervalued by only 6% compared with economic fundamentals, suggesting a no-deal Brexit could prompt a significant further fall in the value of the pound. | |
The market is “pessimistic about the chances of the Brexit agreement passing a vote in the House of Commons”, although it could rally significantly “if, somehow, Mrs May survives and wins the vote”, said Kit Juckes, the global fixed-income strategist at Société Générale. | |
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