The pound fell to a ten-month low on Thursday and remains vulnerable to steep price falls as the United States has the prospect that the United States will leave the European Union without a trade agreement, analysts said.
The pound fell to $ 1.2958 after UK retail sales returned due to weaker-than-expected inflation.
"The pound will remain vulnerable to any increase in market anxiety that a serious Brexit is at stake," said
senior currency strategist at Rabobank. "The market does not start from a hard Brexit."
The pound has fallen 9% against the dollar since mid-April ̵
The more moderate decline against the euro, the currency of Britain's largest trading partner, underscores how investors and analysts count on Britain submitting a trade agreement to leave the EU in March 2019.
British politicians and political commentators are less sure that this will happen. The ruling Conservative party still disagrees over how close it wants to a relationship with the EU, and Brussels has made it clear that it will not accept compromises that would placate the party's sharpest Eurosceptics.
"These are tail risks at the moment, the pound will keep on the back foot," said
Currency strategist at ING. "But acting actively [a no-deal Brexit] scenario is tough because you need to see evidence for it," says Patel.
Other British markets do not show much fear of a hard Brexit.
UK 10-year government bond yields stood at 1.23% on Thursday, about the same as last year. The FTSE 250 equity index, which is more focused on the domestic market, has gained 7% since the beginning of April.
Commerzbank analysts said in a recent report that investors are "unprepared for a political disaster," analysts told Commerzbank investors are "unprepared for a political disaster." In the case of a tough Brexit, the pound could fall to $ 1.12, says Rabobank.
"The market reaction would be very pronounced in such a case," write the analysts of Commerzbank
Certainly, the British markets are still worried about the Brexit, not least because the British economy remains below their comparative values. The trade-weighted pound is well below the level before the Brexit vote in June 2016.
These concerns have worsened lately. Short pound sterling rose from the previous seven days, according to CFTC data in the week of 10 July.
Derivatives on the pound also show that companies and investors expect a decline, but these derivatives do not expect a large decline, which means that there is room for further declines, some analysts say.
UK companies are also actively preventing a collapse of the pound sterling
"We do not see much," said Kenneth Broux, head of corporate research and forex specialist at Société Générale. Meanwhile, the pound is unlikely to get much support from the Bank of England. The expectation of higher interest rates helped the currency for most of this year.
The derivatives markets are pricing in a 70 percent opportunity to raise interest rates by 25 basis points on 2 August, so an increase is largely priced in, analysts say. Weak UK economic data, such as retail sales and this week's inflation numbers, mean that the likelihood of further rate hikes in the next 12 months is low.
Write to Olga Cotaga at Olga.Cotaga@wsj.com