The British pound dropped below $1.20 for first time since January 2017 on Tuesday after Prime Minister Boris Johnson threatened to call an early election if lawmakers defeat his Brexit strategy in Parliament.
"Depending on further developments in U.K. politics, the pound could see sharp moves in the coming week or two. We think it could fall to as low as $1.13 this month," said Sumino Kamei, senior currency strategist at MUFG Bank.
Uncertainties over Brexit have already hit the UK economy, with survey by the IHS Markit/CIPS showing British manufacturing contracted last month at the fastest rate in seven years.
Lawmakers will decide Tuesday whether to move the U.K. one step closer to an early election when they vote on the first stage of their plan to block Johnson from pursuing a no-deal Brexit.
The prime minister has staked his political future on taking Britain out of the European Union on Oct. 31 with or without an agreement, putting him on a collision course with Parliament, where a majority of lawmakers previously opposed leaving without a deal.
With less than 60 days to go, an alliance of opposition lawmakers and rebels in Johnson's ruling Conservative Party will use parliament's first day back from its summer break to launch their attempt to block a no-deal exit.
The group will put forward a vote on whether to seize control of the parliamentary agenda the following day to try to pass legislation that would force Johnson to seek a three-month delay to Britain's EU exit.
Johnson raised the stakes on Monday, however, effectively turning it into a confidence vote by making it clear that if the government was defeated, it would hold a vote on Wednesday to approve an early election, most likely to be held on Oct. 14.
"MPs (Members of Parliament) should vote with the government against (Labour leader Jeremy) Corbyn's pointless delay," Johnson said in a televised statement in front of his Downing Street office after meeting with his top team of ministers.
"I want everybody to know – there are no circumstances in which I will ask Brussels to delay. We are leaving on the 31st of October, no ifs or buts."
Rumors had swirled that Johnson might try to trigger a no-confidence vote — taking his message directly to the people to seek their support. But because of a largely untried law passed in 2011, he needs the support of two-thirds of Parliament to seek an election.
In this case, that means getting the support of the Labour Party.
Labour might see such support as a trap — even though the party has been pressing for a general election since Jeremy Corbyn was elevated to leader in 2015. Corbyn urged opposition parties to join together, saying the events in Parliament this week may be the last opportunity to stop a no-deal Brexit.