The pound slid as prime minister Boris Johnson sought to suspend the U.K.’s Parliament, raising the risk of a no-deal Brexit.
Sterling was the worst performer among major currencies as Johnson confirmed an earlier BBC report, while U.K. government bonds rallied on expectations of an earlier Bank of England interest-rate cut. With the U.K. set to leave the European Union on Oct. 31, suspending Parliament would mean less time for lawmakers to attempt to block a no-deal.
A no-deal Brexit is the worst-case scenario for the pound, driving it down to $1.10, according to a recent Bloomberg survey. The U.K. currency erased Tuesday’s gains that came thanks to the positive tone struck by European leaders at the Group-of-Seven meeting and efforts by the opposition Labour party to attempt to block no-deal.
“It just underscores the veil of uncertainty the pound is facing, the still non-negligible risk of no-deal Brexit and the vulnerability of the currency to negative headline news,” said Petr Krpata, a currency strategist at ING Groep NV.
The pound fell as much as 1.1%, the most in a month, before paring the drop to be 0.7% lower at $1.2206. It weakened 0.7% to 90.85 pence per euro. The yield on U.K. 10-year government bonds fell four basis points to 0.46%, as money markets brought forward expectations of a U.K. rate cut to March from May.
The FTSE 100 Index rose 0.3% to buck regional losses. Companies that make most of their money in U.S. dollars, including firms like catering giant Compass Group Plc and medical equipment maker Smith & Nephew Plc both jumped. U.K. stocks sensitive to the twists and turns of Brexit, particularly housebuilders like Barratt Developments Plc and Taylor Wimpey Plc, fell.
Parliament is due to return from a summer break on Sept. 3. Johnson said he’ll ask Queen Elizabeth II to suspend Parliament from the week of Sept. 9 to Oct. 14. for a Queen’s Speech on his domestic agenda. That will still leave “ample time” to debate Brexit, he said.
“Boris looks to be making the time for Parliament much more constrained but they are not completely out of the game,” said Jordan Rochester, a strategist