| LONDON, Sept 21
LONDON, Sept 21 Worries and uncertainty over the
impact of Britain's looming exit from the European Union drove
sterling to another five-week trough below $1.30 on
Since plumbing a three-decade low of $1.2798 in early July,
shortly after Britain's referendum on EU membership, the pound
had rallied more than 5 percent up against the dollar, as
economic data showed the immediate effects of the Brexit vote
were not as dire as had been feared.
But with British parliament back after its summer recess,
and with Brexit headlines firmly back on newspapers' front
pages, concern that Britain will take a significant economic hit
when it formally leaves the Union have started to weigh.
The Sunday Telegraph reported over the weekend that senior
members of the ruling Conservative Party are supporting a new
group to lobby for a so-called 'hard Brexit' and persuade Prime
Minister Theresa May to leave the EU's lucrative single market.
"People are slowly getting used to the idea that's thrown at
us in every newspaper you can find: that a hard Brexit is
likely," said Societe Generale macro strategist Kit Juckes,
adding that sentiment was helping drive sterling lower this
week, rather than new developments.
"I'm bearish - I think we've probably got about 5 percent
more to go, but it's going to be a a slow and uneven move
lower," he added. "All we're doing now is facing the long-term
debilitating impact on the economy and a long-term period of
Sterling slipped to $1.2946 in early trade, its weakest
since Aug. 16, before recovering a touch, to around $1.2980 by
0735 GMT. That still left it down 0.1 percent on the day and
over 3 percent down from its high just over two weeks ago.
The pound could move later in the day when the U.S. Federal
Reserve announces its latest policy decision - though an
interest rate hike this month has been virtually priced out by
markets, some investors are expecting the Fed to flag a rise by
the end of the year.
Against the euro, sterling was flat at 85.895 pence
, close to the four-week low of 86.31 pence it hit
the previous day.
"We remain broadly bearish on sterling," wrote BNP Paribas
analysts. "Short sterling positioning was squeezed considerably
over the past month...as UK data surprised to the upside. Our
short-term fair value model...signalled that this positioning
squeeze had pushed sterling beyond its short-term fair value."