The pound is set to encounter substantial volatility this week, and would drop to 1.20 against the dollar should there be a no-deal Brexit, which is looking more on the cards every day.

On Monday the pound lost 0.6% and another 0.2% in early Tuesday trading, as the penultimate round of Brexit talks kick off in London.

As I was quoted by The Guardian, concerns over a no-deal Brexit scenario are impacting the pound this week, dragging it lower against several major rivals.

Widely considered a Brexit benchmark, the pound will be hit by considerable volatility driven by politics.

Indeed, the politicking between Britain and the EU has increased as the negotiators meet in London for the eighth and penultimate round of negotiations.

Tensions have heightened this week as the PM stated that if a deal isn’t reached between London and Brussels by October, Britain will accept this and “move on” as he put it.

Boris Johnson went on to add that his government is readying for no Brexit trade deal.

Furthermore, several reports that the UK is drafting legislation to override the requirements of the withdrawal agreement for new Northern Ireland customs arrangements has angered the EU.

Over the summer months the pound rallied, but holiday time is over now, and we can expect to see sterling faced with additional pressure from now until the de-facto trade deadline next month.

Should the talks break down and we have a no-deal Brexit, the already vulnerable pound will be impacted yet again. Indeed, I think we may see it drop to 1.20 against the dollar.

The currency was just sitting under $1.50 before the UK voted to leave the European Union back in June 2016.

As I said last week, it’s important not to be complacent as there are real and burgeoning concerns that a sell-off of the pound could be around the corner.

The currency is being squeezed, which will continue for the coming weeks as predictions increase that trade talks will break down.

As such, it’s important that investors keep a close eye on the pound’s trajectory to sidestep risks to their investment portfolios – particularly if they aren’t sufficiently diversified – and make the most of the opportunities that come about during periods of volatility.

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