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The pound has continued to fall on currency markets as the government insists that the UK is prepared to leave the EU without a deal.
Sterling hit a fresh two-year low of $1.2120 against the dollar on Tuesday, before recovering some ground.
The currency also slid against the euro, falling to €1.0881 at one point.
The fall in the value of the pound means UK tourists heading abroad could face a “horrendous summer”, according to one currency expert.
Pound v Dollar
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- Five holiday destinations where a weak pound still goes far
- Tourists facing travel money ‘shock’ this summer
- The pound’s fall: A tale of two cities
- How does Brexit affect the pound?
Under new Prime Minister Boris Johnson, the government has toughened its stance on a no-deal Brexit, which it has said is “now a very real prospect”.
The pound – which was trading at about $1.50 against the dollar before the EU referendum in June 2016 – has dropped by 2.4% since Monday, when a spokeswoman for Downing Street said that the UK would not enter talks with Europe unless the so-called Irish backstop is scrapped.
She said that because the EU has said it is not willing to renegotiate on this point, “we must assume there will be a no-deal Brexit on 31 October.”
It follows comments at the weekend by Michael Gove, who wrote in the Sunday Times that the government was now “working on the assumption” of a no-deal Brexit,
Mr Johnson appeared to strike a slightly softer tone on Monday afternoon, when he said he would “hold out the hand” and “go the extra thousand miles” to strike a new Brexit deal.
However, it was not enough to stop the slide in sterling.
Pound v Euro
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Seema Shah, senior global investment strategist at Principal Global Investors, said: “If it looks like this juggernaut cannot be stopped, we do expect sterling to keep falling.”
She said that the pound could drop as low as $1.18 against the dollar, but added: “There is a widespread view that a no-deal Brexit will be stopped.”
The former chairman of Goldman Sachs Asset Management, Lord Jim O’Neill, told the BBC’s World at One programme that in addition to the risks of a no-deal Brexit, the markets were also “looking at a government that might be leaning on an independent central bank, possibly including the choice of its new governor” and the policy plans that suggest the government is going to increase spending.
The combination of these factors is “essentially pointing one way for the pound”, Lord O’Neill said.
However, he added that he thought the pound looked “very cheap”, and if there was a Brexit deal, then sterling could recover “very sharply”.
‘Expensive time’
Tourist rates are based on trading levels on the international currency markets, which is bad news for UK holiday makers heading abroad.
“Unfortunately holiday makers are going to experience a pretty horrendous summer,” James Hickman, commercial manager at FairFX, told the BBC.
“If they are visiting Europe they could be getting less than parity for their pounds when buying euros, and they will be getting a poor dollar rate if going to the USA.”
“It is going to get worse,” he adds. “The market is digesting the news that it is almost inevitably going to be a hard Brexit.
“For anyone going abroad in August, it is going to be a very expensive time.”
Those that buy euros at the airport can currently expect to receive as little as 97 euro cents for their pound.
Better rates can be found by buying in advance, with the Post Office offering a sliding scale from €1.0663 to €1.0712 to the pound, depending on how much cash is ordered. In its branches it is offering €1.0630.
That’s still a long way from the summer of 2015, when tourists were getting at least €1.32 for their pound. The big fall came in 2016 after the UK voted to leave the European Union.
Getting the best from your travel money
Analysis by Kevin Peachey, BBC personal finance reporter
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Currency experts say holidaymakers should never wait until they reach the airport to exchange money, as bureaux in the airport complex usually have the worst rates.
The timing of when to exchange cash can be tricky – it is difficult to predict how the value of the pound will move, so one common suggestion is to change half of your holiday money weeks in advance of departure, and the rest just before, to hedge your bets.
Ordering currency online in advance and then collecting the cash in person can also secure a better rate.
Cash exchange is not the only option. Carrying a wad of notes can be dangerous and not always covered by travel insurance. The market for specialist pre-loaded currency cards is growing, and banks are competing on the rates and deals for overseas use that they offer to current account holders. So doing your homework on charges and shopping around is advisable.
In general, using a regular debit card can be expensive, owing to the extra charges, and remember to let your bank know if you are going away to avoid being locked out by anti-fraud processes.
If you do use a card on your holiday, shops, restaurants and cash machines will usually ask if you want to pay in pounds rather than the local currency. Always choose the latter. Tourists can lose up to 10% by paying in sterling rather than the domestic currency.
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