The pound will experience significant volatility this week and would plummet to 1.20 against the dollar in the event of a no-deal Brexit – which is looking increasingly likely to happen.
This is the warning from Nigel Green, the CEO and founder of deVere Group, one of the world’s largest independent financial advisory and fintech organisations.
It comes after the pound shed 0.6% on Monday and a further 0.2% in early trading on Tuesday as the penultimate round of Brexit negotiations start in London.
Mr Green says: “Fears over a no-deal Brexit are weighing hard on the pound this week, dragging Sterling lower against many major rivals.
“Widely regarded as a Brexit bellwether, the pound will be hit by significant volatility fuelled by politics.
“The brinkmanship between the UK and EU has been ratcheted up as the negotiators meet in London for the eighth and penultimate round of talks.”
Tensions have escalated this week as Prime Minister Boris Johnson said that if London and Brussels don’t reach a deal by October, the UK will be ready to accept this and “move on.”
The PM added his government is preparing for no Brexit trade deal.
In addition, reports that the UK is drawing up legislation to override the withdrawal agreement’s requirements for new Northern Ireland customs arrangements has sparked fury in the EU.
The deVere CEO continues: “The pound rallied through the summer months, but the holidays are over and we can expect the currency to come under pressure between now and the de-facto October deadline.”
He adds: “If the talks fail and there’s a no-deal Brexit, the already vulnerable pound will take another hit. I believe it could fall to 1.20 against the dollar.
“It was just below $1.50 before Britain voted to leave the EU in June 2016.”
Last week Mr Green warned that “complacency should be avoided amid real and growing concerns that a sell-off [of the pound] could be on the horizon.”
He concludes: The pound is being squeezed hard and this will continue for the next few weeks as expectations that trade negotiations will fail increase.
“Investors need to monitor the trajectory of the pound to mitigate risks to their portfolios – especially if it is not properly diversified – as well as to capitalise on the opportunities that inevitably arise during times of volatility.”