Sterling erodes Irish gains enjoyed by exporters

Sterling yesterday extended its biggest decline since 2010 as Bank of England policy makers said that uncertainty over Britain’s future membership of the EU is weighing on the currency.

Falls for sterling have eroded the advantages of a weak euro enjoyed by Irish exporters for over a year.

Sterling’s slide on Monday took it to the lowest level in seven years against the dollar after London mayor Boris Johnson said he will campaign for the UK to leave the EU in a June referendum.

Sterling’s 1.8% plunge was the biggest since it tumbled the same amount on the day of an inconclusive general election in May 2010.

Bank of England officials, including governor Mark Carney, said yesterday that the weaker pound could offset the UK’s other economic frailties and help boost inflation.

The policy chief added that the central bank was not making any judgement on the outcome of the EU vote, which could lead to the UK exiting the political and economic bloc — a so-called Brexit.

“Brexit is certainly weighing on the pound,” said Daniel Brehon, foreign exchange strategist at Deutsche Bank.

“But structural concerns such as the current-account deficit were already a problem beforehand. Long-term the depreciation may help boost inflation but pass-through has been underwhelming so far.”

Deutsche Bank is bearish on the pound and forecasts a drop to $1.28 by year-end, Mr Brehon said.

The pound fell 0.3% to $1.4107 in late London trade, after dropping to $1.4058 on Monday, the lowest since March 2009. It depreciated 0.3% to 78.16p per euro after sliding 0.9% a day earlier.

The prospect of Britain leaving the EU is adding to the losses caused by traders pushing back bets on the timing of a Bank of England interest-rate increase.

It is “increasingly clear” that the moves in the pound and in options insuring against a future drop in sterling “have spiked to levels” similar to those seen in the Scottish referendum of 2014, said Mr Carney.

The pound “has under-performed ahead of UK political events in the past”, said Commonwealth Bank of Australia. “The upcoming referendum will be no different.”