The pound and gilt yields slid to multi-year lows as U.K. Prime Minister Boris Johnson stepped up preparations for a no-deal Brexit with just about three months left until the nation exits the European Union.

Sterling tumbled the most among the Group-of-10 currencies as various members of Johnson’s top team took a tough stance, with Chancellor Sajid Javid saying he was stepping up Treasury preparations for a no-deal departure and top aide Michael Gove writing in the Sunday Times that the government was now “working on the assumption” the talks with the EU would fail.

“Sterling should remain under pressure and head toward $1.20 levels over the coming months if early elections materialize and the Conservative party under PM Johnson runs on a ticket of a divisive Brexit stance versus the EU,” said Petr Krpata, a currency strategist at ING Groep NV.

Sterling is the worst performer in the Group-of-10 currencies this month, and Morgan Stanley sees the pound falling to as low as parity with the dollar under a no-deal Brexit scenario.

The new British premier has set up cabinet groups to prepare for a no-deal Brexit and is expected to speak to more European leaders over the coming days.

Sterling slid 1.1% to $1.2244 in London, the lowest level since March 2017. It weakened 1% to 90.80 pence per euro. The yield on U.K. 10-year government bonds fell as much as six basis points to 0.63%, the lowest level since August 2016.

How Low Will Sterling Go If There’s a Hard Brexit?: Macro Man

The FTSE 100 Index of stocks surged as much as 2.2%, the most since January, on conviction a weaker pound will boost the earnings of export-reliant companies.

Topics Europe