Pound Declines as Fears of Disorderly Brexit Trigger Stockpiling
(Bloomberg) -- The pound weakened the most in three weeks on Wednesday as mounting anxiety that the U.K. may be forced to exit the European Union without a divorce deal rattled the nation’s manufacturers.
Sterling dropped for a second day after local factories reported a near-record increase in stockpiling efforts ahead of the U.K.’s exit from the EU on March 29. Over in the gilts market, investors overlooked a manufacturing gauge that rose to a six-month high in December, underscoring concerns about a disorderly departure from the single bloc.
“The market is concerned that any strength is temporary and linked to front-loading of activity ahead of a possible no-deal Brexit,” said Shahab Jalinoos, global head of foreign-exchange trading strategy at Credit Suisse Group AG. “The front-loading may make the data look okay, superficially. But the details then reveal the true reason, and the market takes fright.”
The pound fell as much as 1.1 percent to $1.2596, the weakest level since Dec. 17. Jalinoos expects sterling to test $1.24 within the next three months, though “making a point forecast like that is a bit of a joke when the Brexit date is within it.”
The yield on 10-year gilts declined six basis points to 1.22 percent, though the gain in bonds was in line with a global rally.
In December, the U.K. government stepped up preparations for a no-deal withdrawal, including asking pharmaceutical companies and supermarkets to stockpile drugs and food, and putting 3,500 troops on standby.
“This is not a sterling move. Today is all about risk aversion and flight-to-safety flows,” said Ned Rumpeltin, European head of foreign-exchange strategy at TD Bank. “The Chinese data is a big part of this latest leg lower, but it also looks like the government shutdown is starting to bite.”
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