Pound dives as May fights for Brexit deal

The sterling has tumbled after a series of resignations rocked British Prime Minister Theresa May's government and threw into doubt her long-awaited Brexit agreement just hours after it was unveiled.

The pound slumped nearly 2 per cent against the US dollar and euro on Thursday and was set for its biggest daily drop this year after Brexit minister Dominic Raab resigned to protest at the draft deal with the European Union. Three other ministers followed suit.

Fears that May's hard-fought Brexit deal could collapse sent British financial markets into gyrations not seen since the sell-off following the June 2016 referendum on EU membership.

British stocks sank. Shares in state-owned lender RBS fell 9.1 per cent in their worst one-day loss since the 2016 vote.

The leadership of British Prime Minister Theresa May is in danger, traders say

British gilt yields also plunged with the 5-year yield on track for the biggest one-day decline since August 2016 when the Bank of England unleashed a round of stimulus after the Brexit vote.

The darkening outlook for Britain's economy was also reflected in the money markets, where investors have all but priced out a rate hike by the Bank of England next year.

The cost of insuring exposure to Britain's sovereign debt through credit default swaps rose to its highest level in almost two years.

Traders fear May's leadership is now in serious jeopardy.

"What concerns us is how many ministers seeing this news will be pondering if it is better to get their resignations in now rather than wait," said Nomura strategist Jordan Rochester.

"If more ministers go, it becomes very difficult for Theresa May to hold her position."
Sterling trimmed some of its losses when May vowed in a press conference on Thursday to fight for her draft divorce deal with the EU.

"Am I going to see this through? Yes," May told reporters at her Downing Street office.

She said on Wednesday she had won over her divided cabinet after a five-hour meeting but Thursday's wave of resignations fuelled a sell-off, suggesting rising fear in the markets about a "no-deal" Brexit.

Outcomes now range from a "hard Brexit" to a general election and a second referendum.

In volatile trading, the pound sank 1.9 per cent to $US1.2730, its biggest daily drop this year. At 5.50pm local time, the sterling was down 1.7 per cent against the euro at 88.85 pence.

The FTSE 100 eventually ended broadly flat, reversing the session's earlier 0.8 per cent fall.

The FTSE 100, which makes 70 per cent of its income overseas, is normally boosted by a weaker pound, but losses in companies more exposed to the domestic economy, such as banks and housebuilders, almost offset gains in the big exporters. It ended up just 0.06 per cent.

The more domestically-exposed FTSE 250 fell 1.3 per cent, while the neighbouring Irish bourse fell 3.9 per cent, its worst daily performance since the Brexit referendum more than two years ago.

British financial regulators contacted major banks asking for feedback on market conditions because of sharp falls in the pound, sources said.

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