Pound sterling dropped half a per cent after Theresa May's Florence speech on Brexit

Sterling dropped almost half a per cent against the dollar in the wake of Theresa May's much-anticipated Brexit speech in Florence, where she reiterated that "no deal is better than a bad deal".

The UK currency fell as low as $1.3486 after the Prime Minister outlined her proposal for a two-year "implementation period" after March 2019 but also warned that she was still prepared to pull the UK out of the bloc without a deal at all, an outcome widely seen as an economic disaster for the UK.

It ended the trading down 0.4 per cent at $1.3525.

Against the euro the pound fell 0.54 per cent at €1.1310.

"The pound was sold off, as traders looked for hints around future access to the single market, and were disappointed not to find them in the prime minister’s speech," said Hamish Muress, currency analyst at OFX.

"The markets want a firm commitment to a soft Brexit and future access to the single market, but it doesn’t look like Theresa May will be pushing for this – at least for the time being."

Sterling had been climbing strongly in recent weeks on a combination of anticipation of an early interest rate hike from the Bank of England and a more pragmatic offer from Ms May to the 27 other EU states on Brexit divorce payments.

Commenting on the Florence speech, Kathleen Brooks of City Index said: "The fact that the pound is lower after the speech suggests that May failed to deliver everything that was expected."

The currency is currently around 5.7 per cent higher against the dollar than at the end of August, and is trading around its highest since the 23 June 2016 Brexit vote, when the pound experienced a record one-day fall.

Neil Wilson, an analyst at ETX Capital, described the Prime Minister's speech as "a bit of a dud" for its lack of detail, adding: "It’s hard to see how this does much to make round four [of Brexit negotiations] starting on September 25^th go an awful lot smoother".