Sterling steadied on Thursday after two nervous days linked to fallout from Britain’s vote to leave the European Union drove it below $1.30 for the first time in more than three decades.

Analysts and traders are convinced more weakness in the pound is on the cards, with some predicting a fall to the low $1.20s and others expecting eventual parity with the euro, compared to current levels around 85 pence.

However, the impact of property-related tensions that have hit British assets this week eased in initial trade in London on Thursday, helped by some brighter US economic data the previous day.

Sterling gained around half a per cent to $1.2983 and to 85.48 pence per euro, respectively in morning trade.

“Buyers came back into the market with conviction after the fall to below $1.28,” said Tobias Davis, head of corporate currency sales at Western Union in London.

“But the 31-year low still sets the scene for a potential shift towards 1.25, as long-term technical levels coupled with (fundamentals) will maintain this vulnerability.”

The suspension of half a dozen open-ended property funds — seen as a sign of growing financial stress after the Brexit vote — has dominated the market this week.

The prospect of a collapse in the price of property, a market that has attracted billions in foreign investment, has turned attention back to the inflows Britain needs to cover a current account deficit running at 7 per cent of national output.

That hints at further big adjustments for sterling. The Bank of England (BoE) for now also appears set on cutting interest rates to help revive growth, rather than raising them to support the pound.

Manufacturing and industrial output data for the three months to May were slightly better than expected, but were largely discounted by markets as coming before the shock of the June 23 referendum.

“With May’s manufacturing data yet to capture the new post-Brexit reality, many observers expect production to slump further in the coming months,” said Dennis de Jong, managing director at online brokerage UFX.com.

Related Topics