By Patrick Graham
LONDON, Sept 20 Worries about the political and
economic risks from Britain's pending exit from the European
Union drove sterling to a five-week low beneath $1.30 on Tuesday
in markets thinned by anticipation of U.S. and Japanese central
After a solid start, sterling slid over half a percent to
$1.2953, its weakest level since Aug. 16. It also lost
0.6 percent to hit a four-week trough of 86.22 pence per euro
While the economy appears to have so far ridden out the
aftermath of June's vote to leave the EU better than financial
markets had expected, the past week has brought the first
serious discussions of the terms on which Britain will leave.
"The noise on Brexit over the past week has given us more
reason to sell any rallies," said Tobias Davis, head of
corporate treasury sales at Western Union in London.
"$1.33 was viewed as a short term uptick by most in the
market and a decent enough level to sell."
There was no obvious catalyst for Tuesday's moves but
dealers said it was big-picture worries over Brexit.
"The market in general is just starting to think that
although it wasn't a complete disaster in the first couple of
months, all of the big problems are still ahead of us," the head
currency dealer with one large custodial bank in London.
The head of Germany's Bundesbank warned on Monday that banks
based in Britain would lose "passporting" access to EU markets
after Brexit unless the country remains in the broader European
trading group that includes nations such as Norway.
London's huge financial sector accounts for around 10
percent of the UK economy as a whole.
Positioning data suggests investors have become net slightly
less negative on the outlook for the pound in recent weeks,
while still holding massive "short" bets that leave them exposed
to any rise.
Analysts from Dutch bank ABN Amro said they had upped their
forecasts for the pound for the end of the year.
"With positions being this substantial, other positive
surprises in UK macro-economic data will likely result in an
enormous squeeze of these net-short sterling positions," ABN
analyst Georgette Beale said.
"Our year-end forecasts for euro/sterling and
sterling/dollar are 83 pence and $1.33, respectively. The risk
is tilted towards the upside on sterling."
This week's big focus is the Bank of Japan and U.S. Federal
Reserve meetings both ending on Wednesday, with higher
expectations for action by the former as it battles a strong yen
and long-running low inflation.
(Additional reporting by Jemima Kelly; editing by Mark