The British pound fell to a new 31-year of minimum on Wednesday, amid fears of a political vacuum and exit of the country from the EU.
The currency slipped to $ 1.2796, the lowest level since 1985, after closing at $ 1.2960 on Tuesday.
Analysts are concerned that political uncertainty will have an impact on capital inflows and force companies to delay investment, pushing the economy into recession.
The Bank of England has taken preventive measures to support the economy and stimulate lending by loosening capital requirements for banks.
“As it was said by the head of the central bank Mark Carney, monetary policy can not solve the structural problems, and investors will avoid the UK for fear of uncertainty”, – says Axel Merk, investment director of Merk Investments.
In addition to the start of negotiations on the withdrawal from the EU, the country needs to find a replacement for the outgoing Prime Minister David Cameron.
Analysts expect that sterling will continue to decline.
“I don’t think that the pound reduction came to an end,” – said Ray Attrill, Head of Currency Strategy of the National Bank of Australia.
“We believe that the mark of $ 1.20 is achievable, since the scale of the shock can be compared with the termination of gas production in Australia or oil in Saudi Arabia,” – he continues.
Goldman Sachs expects a new round of pound weakening, mentioning that the Bank of England will speak about new easing measures at the next meeting.
“It can be a catalyst for the further decline of the pound,” – believe the bank.
“The market takes into account the mitigating effect of the repurchase of assets, as well as differences in monetary policy. Interest rates in the US remain in the positive plane, and is widely expected that the Fed will raise them at least once in 2016, “- concludes Goldman.