The currency’s weakness sent London’s Ftse 100 index of shares climbing to a new high, but revived concerns about Irish companies that generate a significant amount of their earnings in Britain.
“Things are getting ugly for the pound once more, with weekend comments from Theresa May pointing to her opinion that the aim of controlling immigration is non-negotiable” as the UK leaves the EU,” said Joshua Mahony, a market analyst at online trader IG.
“It is clear that all parties see single market access as being intertwined with the free movement of labour. Thus it appears that we are heading for a so-called hard Brexit which heightens the negative impact upon businesses operating in the UK,” he said.
With Article 50 set to be enacted in less than three months, there was “likely to be substantial noise coming from both sides of this argument, sparking volatility and a great deal of uncertainty”, Mr Mahony added.
Weak sterling helped London’s blue-chip index break fresh records yesterday because the index includes many companies whose overseas’ earnings will be boosted when translated back into the UK currency.
The Ftse 100 touched a new record high of 7,243.76 points, then settled at 7,237.77 points, up 0.4% for the close and chalking up its tenth straight daily session of gains.
“The Ftse is still currency-led, with Brexit uncertainty over the weekend grinding it higher,” said Mark Ward, head of execution trading at Sanlam Securities UK. “I don’t think these markets will go lower anytime soon,” he said.
IG said that “yet again” the fall in sterling had become the primary means by which the Ftse has risen, with some of the big names from the summer bounce, such as Reckitt Benckiser and Imperial Brands, making gains.
Some Irish stocks with exposure to Britain fell, however.
British prime minister Theresa May said over the weekend that she was not interested in Britain keeping “bits” of its EU membership.
In her first televised interview of the year on Sunday, Ms May denied Britain would face a “binary choice” between curbing immigration and having preferential access to the bloc’s single market when it leaves the EU.
She re-asserted that line yesterday, saying it was wrong for investors to interpret her comments as pointing to a hard Brexit, when asked about sterling’s falls on the back of her weekend interview.
Investors, though, took no comfort.
The euro was trading at one stage at 86.9p, up 1.3% on the previous session, as sterling fell 1% against the dollar.
“The market just takes the most negative view — it assumes that because May is keeping her cards as close as possible to her chest, there is no plan for Brexit and that we’re going to hard Brexit out of the EU,” said BMO Capital Markets currency strategist Stephen Gallo.
Another risk was also playing into sterling’s weakness, strategists said — that of Scotland calling another referendum on independence, investors said.