The pound plummeted below $1.22 and €1.10 on Wednesday after fears of a no-deal Brexit increased when the government said it would end the current session of parliament after September 9.
In a letter to his party colleagues, Prime Minister Boris Johnson said he would suspend parliament until October 14 as his government prepares a new legislative agenda. The announcement makes it harder for opposition parties to table legislation that would prevent the UK falling out of the European Union on October 31 without a divorce agreement.
By Wednesday afternoon the loss had pared to nearer 0.6 per cent - still down some 3.7 per cent over three months.
Critics of a no-deal Brexit, which includes many ‘moderate’ members of Mr Johnson’s ruling Conservative Party, argue that a clean break from Brussels will devastate the UK economy and send it falling into a recession.
“It just underscores the veil of uncertainty the pound is facing, the still non-negligible risk of no-deal Brexit and the vulnerability of the currency to negative headline news,” said Petr Krpata, a strategist at ING Groep NV.
MPs opposed to a no-deal Brexit altogether had finally come together on Tuesday to set out their plans to stop a hard withdrawal from the EU. On Tuesday, the pound had hit a one-month high against the dollar and the euro following the news.
“For the pound to recover the fall this morning, anti-no deal MPs will have to get their acts together in the first weeks of September,” said Jordan Rochester, a strategist at Nomura.
Mr Johnson, an arch Eurosceptic, has said the UK will leave with or without a deal on October 31. His preference is to renegotiate a divorce agreement with Brussels despite the latter’s insistence this is not possible.
The prime minister’s predecessor Theresa May stepped down after seeing her withdrawal agreement rejected three times by parliament.