The British pound has had a dreadful few days.
The currency started the week by tumbling to a 31-year low against the dollar following comments from Prime Minister Theresa May on Sunday indicating that Article 50 would be triggered by the end of March 2017, which would begin the official process of Britain leaving the European Union.
Then, sterling flash-crashed in early Asian trade on Friday, collapsing by as much as 6%, to 1.1841, against the dollar before bouncing back. It slipped again around 5 a.m. ET, moving down about 2% against the greenback.
Now sterling is down by 1.4%, at 1.2439, against the dollar as of 12:42 p.m. ET, helped slightly by a weaker dollar following the US’s disappointing jobs report.
But zooming out and looking at what’s happened over the course of the week, it’s notable that sterling seems to be moving after political, rather than economic, developments nowadays.
"GBP has gone from a cyclical to a political and structural currency," HSBC strategist David Bloom wrote in a note. "The structure and politics are conducive to a currency that needs to fall to a level that causes balance. That balancing act is and has been in our eyes is still a lot lower than where it is today."
Although some have suggested that French President Francois Hollande's comments on Thursday demanding Europe take a tough stance on negotiation might have been the catalyst for Friday's flash crash, a Morgan Stanley team led by Hans Redeker said in a note that the EU has long maintained this position - meaning Hollande didn't really say anything new.
What is new, however, are the reports suggesting that the UK might be heading for a "hard Brexit" - or a deal in which the UK would pull out of the European single market, which in turn would allow the government to end the free movement of people into the country.
"Surplus countries may 'afford' anti-globalization rhetoric. Deficit countries like the UK cannot come close to that without risking currency weakness," Redeker and his team wrote in their note. "We had previously suggested that better demand data would not provide any GBP support. What matters, in our view, is the supply side. As long as the outlook remains weak on this side GBP will trade lower."
As for how Friday's flash crash plays into the overall outlook for the currency, a CitiFX team argued that it "continues to point out the bottom in sterling has yet to be found."
In a separate note, a CitiFX team led by Tom Fitzpatrick wrote, "Wherever we go from here in terms of the UK economy, UK-EU negotiations, timing of Article 50, the Bank of England, the USD trend, or any other related issue, a test of that all-time low cannot be written off."