Sterling fell to a 31-year low against the U.S. dollar on Tuesday as worries over Brexit were compounded by the renewed strength of the greenback on a recent flurry of better-than-anticipated economic data. Despite the strength of the dollar, both Brent and U.S. crude edged higher to recent gains that have come on wages that OPEC and non-OPEC oil producers could come to an agreement on curbing production. Sterling reached its weakest levels since 1985, pressured by a advancing sense that Britain may be heading for a “hard” exit from the EU where it cuts ties to the single market in favor of total control over immigration.
“It is now abundantly clear that access to the single market is not on (Prime Minister) Theresa May’s list of top priorities and the market is realizing that … there is more pressure for the pound in the weeks and months ahead,” quoted UniCredit global head of FX strategy Vasileios Gkionakis.
On Wall Street traders withdrew from interest rate-sensitive sectors, with utilities, telecoms and real estate posting the largest percentage drops among S&P 500 sectors. The Dow Jones industrial average dropped 43.29 points, or 0.24 percent, to 18,210.56, the S&P 500 declined 5.5 points, or 0.25 percent, to 2,155.7 and the Nasdaq Composite fell 1.92 points, or 0.04 percent, to 5,298.95.
Recent U.S. data suggests a strengthening manufacturing sector along with an upward adjusted to second-quarter GDP has increased wages of a Fed rate hike by the end of 2016. Traders now foresee a greater than 50% chance of a rate hike in December.
Oil prices increased, with Brent reaching four-month highs on a recovery ignited by OPEC plans to limit output before retreating as the stronger dollar weighed. U.S. crude CLc1 increased 0.2 percent at $48.90 a barrel and Brent LCOc1 last traded at $51.12, up 0.5 percent on Tuesday. The dollar index, which measures the currency versus a basket of major currencies, increased 0.5 percent to 96.191 .DXY.