Prospect of Hard Brexit Looking ‘Very Tangible,’ Rabobank Says

(Bloomberg) -- The chances of a hard hard Brexit are “looking very tangible” following the resignations of U.K. Brexit Secretary Dominic Raab and several other officials from Prime Minister Theresa May’s government, according to Jane Foley, head of currency strategy at Rabobank.

“The political backdrop from an investor’s point of view now is looking really very ugly,” Foley said in an interview with Bloomberg Radio on Thursday. “Sterling gives us a really good reflection about how vulnerable investors are feeling with respect to the political uncertainty in the U.K. right now.”

The pound plunged as much as 1.9 percent to $1.2744 on Thursday, from as high as $1.3072 the day before, and was headed for its steepest drop since June 2017, when May’s Conservative Party lost its parliamentary majority in an early election. Sterling’s tumble came on the resignations and as questions of a leadership challenge arose.

“There probably isn’t parliamentary backing for her deal,” Foley said. “And she has said if there isn’t a deal the U.K. is still going to leave the EU in March next year, meaning that the prospect of a hard Brexit is looking very tangible.”

In addition to Raab, Pensions Minister Esther McVey and two junior ministers also resigned on Thursday. The departures followed the exit of Transport Minister Jo Johnson on Nov. 9 and those of Brexit Secretary David Davis and Foreign Secretary Boris Johnson in the summer, among others.

“This really does reinforce the splits within the Cabinet,” Foley said of Thursday’s developments. “So we have here in the U.K. an extremely divided Cabinet, an extremely divided government, and an opposition party which is very market-unfriendly.”

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