Sterling has taken a pounding since the start of this year. Most explanations point the finger at low inflation expectations and further pushing back of the timescale for the first rate rise by the Bank of England. UBS is stressing a different explanation: Brexit risks.

The dramatic fall in sterling in trade-weighted terms is “almost unprecedented in 20 years,” according to John Wraith at the Swiss bank.

He says (our highlights):

Since the middle of November, the trade weighted sterling index has fallen by more than 7 per cent, a two-month devaluation of a scale almost unprecedented since the MPC was given responsibility for UK monetary policy almost twenty years ago. The one occasion when a larger fall was recorded over this timescale was at the end of 2008, at the peak of the global financial crisis.

The start of 2016 has been ugly in markets. But this is no 2008 re-run. And for UBS, relative rate shifts in yields in the UK relative to the US, tepid wage growth, and the fall of commodity price all offer unsatisfying explanation for the drastic fall.

The bank says:

The clearest potential catalyst, and the one we ascribe the dislocations to, is the UK referendum on EU membership.

Since the start of 2016, there has been a dramatic increase in the focus on this risk event… Implications for UK economic recovery and for financial assets such as Gilts are less clear, but a drop in demand for UK assets in general poses major downside risks to the currency.

Further falls may be on the cards for sterling:

Were the trends in recent opinion polls to continue until the vote itself, further downside for the currency must be a real risk, irrespective of expected ongoing robustness in general UK economic indicators.

For its part, HSBC says it thinks the UK “will need to get beyond Brexit fears” before sterling can climb. When it does, David Bloom at the bank says he thinks the pound is heading to $1.60.

Assuming UK voters do opt to stay in the EU, as HSBC expects…

The sizeable political risk premium that has been recently built into sterling will disappear. The markets will then focus exclusively on the cyclical story where we believe strong UK domestic demand will force the BoE to tighten far sooner than is currently priced in.

And if the UK does opt to go? Sterling could fall by 20 per cent against the dollar, the bank says. Gulp.

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