Pound sterling falls under July post-Brexit referendum low

Published Wed, Oct 5 2016 3:20 AM EDTUpdated Wed, Oct 5 2016 7:09 AM EDT

Leslie Shaffer

Sterling's tumble isn't finished, Koon How Heng, a senior foreign-exchange strategist at Credit Suisse, told CNBC, as the currency dropped below July's post-Brexit referendum low.

"We still have a very negative view on the sterling," Heng said.

Sterling was fetching as little as $1.2732 Wednesday, under the $1.2796 low it hit on July 6 in the wake of the referendum vote to leave the European Union. Wednesday's levels were down from levels over $1.30 last week and well off the high of $1.5018 the currency touched before the June 23 poll.

The pair is currently at their lowest level since March 1985, when the pound neared parity with the U.S. dollar amid an acrimonious miners' strike in the U.K.

"Officially, our forecast for sterling dollar is at 1.25," Heng told CNBC's "Street Signs" just hours before the currency took its latest leg lower. "We would think it's going to head lower. It's probably going to go down the tubes."

However, another analyst told CNBC Wednesday that sterling weakness is likely to persist, as the market still isn't pricing in the increasing likelihood of a 'hard' Brexit.

"Forecast for the year end is $1.20 and we have got euro/sterling at 90," Vasileios Gkionakis, Head of Global FX Strategy, Unicredit said.

"Forecast is a mixture of art and science so take these exact levels with a pinch of salt. The bottom line is that right now we have the potential outcome of hard Brexit has increased and you have all these reversal of flows against sterling. I see sterling weakness on a multi-month basis."

The tumble followed renewed fears over the Brexit, after U.K. Prime Minister Theresa May announced on Sunday that Article 50, which starts the exit process, would be triggered by the end of the first quarter 2017.

May told The Sunday Times she would introduce a repeal bill to scrap the 1972 European Communities Act, the legislation that allowed Britain to enter the EU. The "Great Repeal Bill" will be introduced in the next Queen's Speech, which the newspaper said was expected in April or May 2017.

Heng said that there was now a more clear timeline on when Article 50 would be triggered but little new information other than that.

The pound's tumble was "more of a reinforcement, a reminder to the market of the harsh realities of the Brexit process, meaning there's still a lot of uncertainties once the Article 50 is triggered, and for next two years, how this will swing either way," he said.

Heng also noted that sterling wasn't just selling off against the dollar; it was also falling against all the major currencies.