Sterling fell to a new two-year low versus the dollar on Tuesday amid growing speculation that Britain is headed for a messy no-deal Brexit from the European Union.
Sterling has fallen against the dollar for the past four trading days on worries that Britain will exit the EU without agreements on trade and other key issues. There is also a chance that new Prime Minister Johnson will call an early election.
Against a basket of six major currencies, the dollar traded near a two-month high.
The Fed is expected to cut rates by 25 basis points on Wednesday, and investors are watching for clues on whether the move may be a one-off or the first in a series of several cuts, as many traders are anticipating.
Uncertainty about how Britain will divorce itself from the EU and the resulting economic impact could keep the pound on the back foot for weeks to come.
Monetary policy is another important factor for currency markets as central banks from Australia, New Zealand, Europe and possibly Britain are expected to cut rates due to low inflation and risks to global economic growth.
“No one wants to buy the pound now,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.
“The bottom has fallen out, and I’m not sure where it will stop. Uncertainty about Brexit is the main story. I don’t see how Johnson can get an agreement in place.”
Sterling fell to $1.2120, the lowest since March 2017.
The pound took a turn for the worse on Monday after Johnson said the Brexit divorce was dead and warned that unless the European Union renegotiated, Britain would leave on Oct. 31 without a deal.
The dollar index edged to a two-month high of 98.206.
The Fed is forecast to cut its target interest rate range on Wednesday by 25 basis points to 2.00%-2.25%.
Investors previously saw the chance of an even more aggressive 50-basis point cut, according to interest rate swaps, but these expectations have dissipated as data has shown the U.S. economy is not as weak as some feared.
The yen was little changed versus the dollar on Tuesday, trading near a three-week low after the Bank of Japan left monetary policy on hold as expected.
The yen was quoted at 108.570 per dollar, little changed on the day. The yen fell to a three-week low of 108.950 early in Asian trading.
Japan’s currency pared its losses and edged a tad higher versus the dollar after the BOJ’s decision, but the move quickly faded.
The BOJ, as expected, maintained a pledge to guide short-term interest rates at -0.1% and the 10-year bond yield around 0% via aggressive bond purchases.
The BOJ also said it will ramp up stimulus “without hesitation” if needed, but traders have repeatedly said that compared with other major central banks the BOJ has limited options left.