Pound drops to post-Brexit lows versus US dollar

Sterling was holding lower in late-morning trading after the Prime Minister committed the government to staring formal talks on leaving the European Union by the end of the first quarter of 2015, at the latest.

Some traders were also referencing a report from Sky News according to which civil servants in were working on being able to trigger Article 50 of the Lisbon Treaty by mid-January.

As of 1107 BST the pound was nearing the 31-year low of 1.2798 reached on 6 July, roughly a fortnight after the referendum vote.

In particular, market commentary appeared to be focusing on the emphasis placed by May on the need to control immigration, which in theory meant more limited access to the single market in exchange.

It was 0.87% lower at 1.2866.

An unexpectedly large rise in the Markit UK manufacturing sector purchasing managers’ index for September, from 53.3 in the month before to a reading of 55.4 (consensus: 52.1), helped lift cable from its intra-session lows of 1.2845.

Data released over the weekend by the Commodity Futures Trading Commission also revealed that investors had increased their short positions on the pound-US dollar currency cross to 87,714 during the latest week.

Against that backdrop, Chancellor Philip Hammond was scheduled to speak at lunchtime, with investors watching to see if he would drop any hints regarding the extent of any fiscal loosening that might be forthcoming in the Autumn statement.

Commenting on the latest manufacturing PMI reading, Martin Beck, senior economic adviser at EY ITEM Club, said the weaker pound appeared to be spurring stronger overseas demand.

“The question now is whether this resilience can continue, particularly now we have a time-frame for triggering Article 50. At the same time, sterling’s ongoing weakness will continue to offer a helpful counterweight to the effect of uncertainty,” Beck said.

For his part, earlier in the day Michael Hewson, chief market analyst at CMC Markets, said: "The pound continues to remain under pressure but while above the 1.2900 level the risk remains for a move higher, though a potential break would target the July lows just below 1.2800. We need a rebound through the 1.3120 level to stabilise, and break the cycle of weakness."