The British pound sank to a two-month low versus the U.S. dollar on Monday morning, hit by both strong labor data out of the United States and comments from the British Prime Minister suggesting the U.K. may be on track to leave the European single market.
Sterling broke below 1.22 U.S. dollars at around 6.00 a.m. London time, a level seen as an important support point by foreign exchange traders, reaching lows untested since the final days of October.
U.K. Prime Minister Theresa May made clear that she will prioritize keeping control of immigration in the hands of her government over favoring access to the European single market once the U.K. leaves the European Union (EU), during an interview with Sky News over the weekend. The single market is a tariff-free trade agreement within the EU and is seen as crucial for certain sectors such as car manufacturing.
In emailed comments to CNBC, Craig Erlam, senior market analyst at OANDA, said the British currency remained extremely vulnerable to the prospect of a raw deal for the U.K. economy and highlighted the next critical levels to watch.
“While we may find further support around 1.2150, the next key level for the pair comes just below 1.21, the post-flash crash lows. This will be a major test of just how bearish sterling traders are in the aftermath of May’s comments,” he concluded.