By Callum Keown
The pound plummeted to near three-year lows on Tuesday ahead of a crucial day for Brexit in Parliament.
Sterling /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.1809% fell below $1.20 to its lowest level since October 2016 as British Prime Minister Boris Johnson threatened to call a general election if MPs block a no-deal Brexit this evening.
The currency bounced back above $1.20 but was still trading down for the day.
The pound’s continued descent meant the internationally focused FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +0.20% avoided the heavier losses felt by other European indexes, sliding just 0.3%.
What’s moving the markets?
Johnson has threatened a snap election if a group of rebel MPs succeed in blocking a no-deal Brexit through a bill being put forward on Tuesday.
The heightened uncertainty caused stocks to open lower and the prospect of an election led the pound to slide to lows of $1.1960.
While traders fear a no-deal Brexit, which the Bank of England said could see the pound crash to parity with the U.S. dollar, they are also terrified of a government led by Jeremy Corbyn, the head of the opposition Labour Party.
Neil Wilson, analyst at Markets.com, said: “We could feasibly see $1.15 or even $1.10 in the coming weeks if traders decide to move against the pound.
“Elections are never easy to call—the risk of Corbyn to U.K. assets is probably greater than a no-deal Brexit, after all.”
The election, if called, would take place on Oct. 14—just two weeks before the scheduled date for the UK to leave the European Union.
Michael Brown, Caxton FX analyst, said: “The outcome of a snap election is difficult to predict. However, ensuing uncertainty in the 5-6 week campaigning period should result in the pound remaining under pressure.”
Which stocks are active?
Travel and leisure stocks were hit on Tuesday as budget airline EasyJet /zigman2/quotes/202825892/delayed UK:EZJ -0.53% fell 4% after being downgraded by Kepler Cheuvreux from hold to reduce.
The Restaurant Group /zigman2/quotes/207518837/delayed UK:RTN +1.75% dropped 12.4% after posting heavy losses in the wake of its takeover of Wagamama, the Asian-themed fast-food chain. The company swung to a pretax loss of £87.7 million in the first half of 2019, compared with a £12.2 million profit over the same period in the previous year.
British plumbing and heating distributor Ferguson /zigman2/quotes/209006722/delayed UK:FERG +0.89% rose 2.9% as it revealed plans to separate its U.K. operations and focus on its U.S. business.