The selloff of the British pound continued this week, with the GBP/USD exchange rate hitting fresh three-month lows amid reports Prime Minister Theresa May was standing firm on her commitment to a hard Brexit.
The GBP/USD hit a session low of 1.1999 on Monday, a loss of 1.5%. The pair came off session lows, and was last down 0.9% at 1.2069.
A slumping pound helped the US dollar index rebound after three straight losses. The dollar index, a measure of the greenback against a weighted basket of six rivals, rose 0.4% to 101.56.
The pound’s slump didn’t end there. It also declined sharply against the euro, with the EUR/GBP exchange rate strengthening 0.5% to 0.8780. Sterling experienced a sharp selloff against the Japanese yen, with the GBP/JPY exchange rate plunging 1.4% to 137.633. That was the lowest level since November.
Speculative net short positions on the pound climbed to three-week highs in the week ended January 3, data from the CFTC recently showed. This suggests further downside may be in store for the currency.[1]
The pound’s recent fall comes amid expectations British Prime Minister Theresa May may stick to her pledge for a clean break from the European Union. Her stance was somewhat vindicated on Monday by London-based think tank Policy Exchange, which released a paper recommending a “clean Brexit.â€[2]
Brexit secretary David Davis also wrote in The Sunday Times that the government is seeking a new trade deal with Brussels that may  differ from the existing one.
“We don’t want the EU to fail, we want it to prosper politically and economically, and we need to persuade our allies that strong new partnership with the UK will help the EU to do just that,†he wrote.[3]
Mr. Davis had previously indicated his preference for continued free-trade access to the single market.
Pound sterling has been caught in a death spiral since the June 23 referendum, having declined 19% against the dollar over that period. As a result, sterling is currently trading near three-decade lows. Analysts warn for potential further downside risk is in store once the official Brexit negotiations begin. To begin that process, the British government must trigger Article 50 of the Lisbon Treaty, the formal mechanism for exiting the single market. Once the clause is triggered, London and Brussels may have two years to reach a new trade agreement.
