The pound fell again on Monday – dipping below $1.20 at one point – as concern mounted that the UK was heading for a “hard” Brexit from the European Union and its single market, a day before a speech by Theresa May on the government’s plans.

Some newspapers have billed the prime minister’s speech on Tuesday as a push away from preferential EU single market access and a hardening of the UK’s stance toward an economic bloc that accounts for roughly half its exports and imports.

A spokeswomen for May, who will also attend a gathering of the world’s economic elite in Davos, Switzerland, this week, called the reports about the planned tone of her upcoming speech “speculation”.

That helped steady sterling in London trading but couldn’t repair all the damage. The pound at one point had dropped below $1.20 to a three-decade low against the dollar, barring its “flash crash” in October, and as much as 2.5% against the Japanese yen.

Pound v dollar, January 2017 Pound v dollar, January 2017

“It’s clear that sterling is still very vulnerable to ‘hard’ Brexit fears,” said Rabobank currency strategist Jane Foley. “The uncertainty is itself also a negative factor, and I think perhaps that’s one of the reasons for Theresa May’s speech on Tuesday, to provide a little bit of clarification.”

With May expected to trigger article 50 by the end of March, which will start formal EU separation proceedings, the battle lines are already being drawn.

British finance minister Philip Hammond also gave a thinly veiled warning in a German newspaper interview at the weekend that the UK could use corporate tax as a form of leverage in Brexit negotiations.

“If we have no access to the European market, if we are closed off, if Britain were to leave the European Union without an agreement on market access, then we could suffer from economic damage at least in the short term,” he said. “In this case, we could be forced to change our economic model.”

However, he added that Britain did not want to close its doors completely to EU citizens who wanted to work in the UK.

May’s spokeswoman said on Monday her boss shared Hammond’s view on Britain’s tax framework. She added, though, that she did not recognise comments from Sunday Times sources that May’s office was expecting a “market correction” after her speech.





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May has said she will trigger article 50, starting the formal withdrawal from the EU, by the end of March. So far, she has revealed few details about what kind of deal she will seek, frustrating some investors, businesses and MPs.

May’s speech on Tuesday will stress the need for Britons, who voted for Brexit by 52% to 48% in last June’s referendum, to unite around common goals such as protecting and enhancing workers’ rights.

Chris Weston, of IG in Melbourne, said: “The market is now positioning for some fairly punchy rhetoric from Theresa May and this idea of ‘hard Brexit’. A clean break from the single market seems increasingly likely.

“We also hear from the UK supreme court this week amid a market is starting to head towards a ‘hard Brexit’ and the great unknown. Forget the run of good UK data, GBP is an out-and-out political currency (it has been for a while) and the prospect of volatility here is now very high.”

Later on Monday, Bank of England overnor Mark Carney, who has delivered a string of warnings about the potential impact of Brexit, will give a speech at the London School of Economics on the policy issues affecting the bank.

The central bank cut interest rates to a record low and pumped fresh stimulus into the economy shortly after the Brexit vote, but it is now seeing inflation accelerate as a result of sterling’s slide.

The pound has fallen almost 20% against the dollar and nearly 14% against the euro since the vote. In afternoon trading on Monday, it was down more than 1% against the dollar at $1.2045 and 0.7% against the European single currency at €1.1370.

Commenting on the moves, Michael Hewson, analyst at spread-betting and trading firm CMC Markets said: “While it is notable that the pound has revisited its October lows against the US dollar, against the euro it hasn’t come anywhere near close to them, reflecting perhaps the increased risks to Europe from upcoming political uncertainty in the coming months.”

“The pound may well have also been helped by a further U-turn by the IMF as they upgraded their growth forecasts for the UK economy for 2017 from 1.1% to 1.5%,” he added, referring to the latest outlook for the UK and other economies from the International Monetary Fund.









