FX Focus: Pound plunges to two-month low against the euro amid rising Brexit uncertainty

The pound slumped to a two-month low against the euro on Tuesday (10 January), amid increasing uncertainty over the future of Britain's relationship with the European Union after Brexit.

Sterling dropped to €1.1466, the lowest level since early November and fell to a fresh 10-week low $1.2107 against the dollar, extending the losses recorded in the previous session, when it hit the lowest level in three months against the greenback amid market fears that Theresa May is leading Britain to a "hard Brexit".

"Sterling remains imprisoned by the hard Brexit concerns while uncertainty motivates bears to attack ruthlessly at any given opportunity," said FXTM research analyst Lukman Otunuga.

"While there continue to be talks of the euro/dollar parity, the pound/dollar parity could also become a reality if the Brexit turmoil pressures the Bank of England to adopt a dovish approach."

Kathleen Brooks, research director at City Index, added investors were likely to bet against the British currency until the government clarifies its strategy over Brexit.

"We expect the pound to remain the most volatile of the G10 currencies in the coming months while we wait for the triggering of Article 50," she said.

"Essentially the market is likely to re-establish shorts in GBP, after a brief respite at the end of last year, until it is quite confident that Brexit won't be 'hard' or disastrous for the UK economy."

Mrs May has sought to blame the media for stoking fears the Britain will exit the EU will be chaotic and driving down sterling against both the dollar and the euro.

Across the Atlantic, the dollar steadied, after declining in the previous session.

The US currency was 0.17% higher against the yen, buying ¥116.20 and rose 0.20% and 0.23% against the euro and the Canadian dollar, trading at 0.9464 euro cents and CAD$1.3247 respectively. The greenback was flat against the Swiss franc but rose 0.20% against its Australian counterpart, exchanging hands at AUD$1.3620.

However, the dollar index – which measures the strength of the greenback against a basket of worldwide currencies – has fallen four times over the last five days, leaving the indicator 1% lower than the 14-year high it hit on 3 January.

Naeem Aslam, chief market analyst at Think Markets UK attributed he US currency's recent volatility to growing worries of Donald Trump's economic policies. The US President-elect will hold his first press conference since July on Wednesday, with investors set to monitor the proceedings closely.

"The weakness [in recent days] in the dollar is the major factor here, as traders are wary ahead of a media briefing by US President–elect Donald Trump," he said.

"He has labeled a few countries as currency manipulators and investors are going to get a flavor for how he is going to tackle that."