No-deal Brexit concerns continue to weigh on pound

The British pound continued its slide on Tuesday after falling to its lowest in more than two years on Monday, sparked by concerns that new UK Prime Minister Boris Johnson will lead the country out of the European Union (EU) without a deal on Oct 31.

The pound was trading 0.34 percent and 0.46 percent lower against the U.S. dollar and the euro at 1.217 and 1.091 respectively in early afternoon on Tuesday. The pound dropped below 1.23 against the U.S. dollar for the first time on Monday since Article 50, the mechanism which started the Brexit process, was triggered in March 2017.

Toughened rhetoric on Brexit by Johnson and his new government was regarded as a main drag on the pound. Just three months away from the Brexit date, Johnson, who took office last week, vowed to deliver Brexit by Oct. 31 with "no ifs, no buts" and he promoted hard Brexiteers to key cabinet positions to help him deliver Brexit.

"The bulk of the depreciation in the pound seen recently can be attributed to concerns regarding Brexit, with the UK set to pursue a risky game of brinkmanship in pushing for a better deal," said David Cheetham, chief market analyst at online broker XTB UK.

During a visit to Scotland on Monday, Johnson told journalists that the Irish border backstop issue is now dead, and called for a new deal with Brussels, insisting Britain will leave the EU without a deal on Oct. 31 if necessary.

Pound sentiment soured as neither Johnson nor the EU showing any signs that they are likely to back down over the backstop issue, stoking fears that the UK might leave the EU without a deal and the market is trying to price in once again the possible outcomes on Brexit, analysts have said.

Michael Gove, who was asked by Johnson to lead the preparations for leaving the EU on Oct. 31, wrote in the Sunday Times that the government is operating "on the assumption" the UK is going to leave the EU without a deal.

The UK government has intensified preparations to deliver Brexit, including establishing a "Daily Operations Committee" of senior ministers. Sajid Javid, the chancellor of the exchequer, is reportedly to announce additional fund for a no-deal Brexit preparation.

The Confederation of British Industry(CBI), a British business group, urged Britain and the EU to capitalize on the new political dynamic presented by the appointment of a new British prime minister to work toward a Brexit deal as well as step up no-deal preparations, because neither Britain nor the EU is ready for a no-deal Brexit by Oct. 31.

Having analyzed Brexit preparations by Britain, the EU and businesses in 27 key areas of Britain's relationship with the EU that are most important to businesses, the CBI concluded that despite existing mitigations, disruption is likely in all those areas immediately after a no-deal Brexit.