The British pound headed lower again in early trade on Tuesday after a warning that a Hard Brexit could deliver a 100-billion pound blow to public finances.
A report by the Institute for Fiscal Studies think-tank concluded that the budget deficit could rise to 4 percent of gross domestic product if the U.K. leaves the European Union without a transitional agreement, as Prime Minister Boris Johnson is currently threatening to do.
There is little sign of the EU accepting the U.K.’s latest proposals on changes to the existing Withdrawal Agreement in time for a new agreement to be finalized at next week’s summit.
Johnson’s finance chief Sajid Javid has already announced large increases in public spending to cushion the economy in the event of a Brexit shock, leaving the government no room for any additional budget shortfalls if it is to stick to a fiscal rule that says public debt must fall as a proportion of GDP next year.
The dollar index, which measures the greenback against a basket of developed-market currencies, was little changed from late Thursday at 98.610.
The euro itself edged higher in early trade after a modest upside surprise in German industrial production, which rose by the most in five month in August. Analysts were, however, quick to say that not too much should be read into the development.
“Industrial production is always volatile during the summer months, so September will be more important to assess whether we can really talk about a trend reversal,” said ING’s Peter van den Houte. “In that regard, the omens remain bleak. With yesterday’s data showing that industrial orders actually slowed further in August, there’s little hope of a real turnaround.”
Elsewhere, the Turkish lira recouped some of Monday’s losses but remains close to a six-week low after the U.S. appeared to soften its tone about pulling troops out of Syria. President Donald Trump had announced U.S.
troops would withdraw from areas controlled by anti-Assad Kurdish rebels and would not intervene if Turkey moved against them. His announcement was sharply criticised even by senior Republican senators normally loyal to him. By 3:30 AM, the dollar was at 5.8045 lira, down 0.5% from late Monday.forex.com
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