The pound tumbled to its lowest level in three decades amidmounting concern the U.K. is heading for a so-called hard Brexitthat would restrict access to the European Union's singlemarket.

Sterling exceeded its lows versus the dollar set in the wake ofthe June 23 referendum and touched the weakest in 3½years against the euro. The slide extended as Prime MinisterTheresa May was said to take the view that financial services wouldget no special favors in EU exit talks. The pound has fallenagainst all 16 of its major peers since the premier's weekendannouncement that she'll trigger the formal process forquitting by March.

“We have the market facing the reality that Brexit is about tobegin and we could be faced with hard Brexit,” said JaneFoley, a senior currency strategist at Rabobank Internationalin London. The reports about the financial sector are “justlacing the concerns the market already has about the outlook forgrowth, investment and jobs in the U.K. economy.”

The pound fell 0.7% to $1.2754 as of 4:50 p.m. in London, andtouched $1.2720, the lowest since 1985. It sank 0.8% to87.97 pence per euro, after dropping to the weakest level sinceFebruary 2013.

The Bloomberg British Pound Index, which measures sterlingagainst other major currencies, has fallen 1.5% this week to thelowest since the gauge began in 2004.

Options prices suggest further losses for the pound throughyear-end. The premium on three-month contracts to sell sterlingversus the dollar, over those to buy, widened to 1.4 percentagepoints, risk-reversals data compiled by Bloomberg show. Thatsuggests the most bearish pound sentiment since late July.

Sterling will end the year little changed at $1.28, according tothe median estimate in a Bloomberg survey. Some see it going muchlower, though, with four forecasters — including HSBC Holdings Plc,Europe's biggest bank — predicting a drop to $1.20.

The U.K. currency has already slumped 14% since the Britishpeople voted to quit the EU, and it just completed its worstquarterly run of losses since 1984, with five straightdeclines.

While sterling's weakness has become a focus of politicianswho opposed the “Leave” referendum campaign, it's not necessarilybad news for everyone. The lower exchange rate will cushion theeconomy by helping exporters, and the currency's losses thisweek have buoyed the FTSE 100 Index of stocks, which surpassed7,000 for the first time in 16 months.

Faster Inflation

It should also help the Bank of England achieve its goal offaster inflation. The 10-year break-even rate, a bond-market gaugeof expectations for prices over the next decade, climbed to thehighest since the middle of last year.

Selling the pound has accelerated since the first day of theruling Conservative Party's annual conference on Sunday, when PrimeMinister May promised to curb immigration and set a date forBritain to trigger Article 50, which starts a two-year withdrawalprocess from the EU. While that removed one source of doubt that'sbeen hanging over U.K. businesses, the premier failed to providemuch clarity on what leaving the EU will actually look like.

May's reported refusal to prioritize the protection of thefinancial industry is only increasing concern among currencytraders that the government will compromise on economic protectionsin order to gain control over immigration.

“The market is unimpressed with the politicians” being seemingly“happy to trade single-market access and support for financialservices for total control of immigration and primacy of U.K. law,”said Jeremy Stretch, head of foreign-exchange strategy at CanadianImperial Bank of Commerce in London.

A speech May is due to give the conference on Wednesday “couldbe another opportunity for sterling to be sold,” especially ifservices figures due tomorrow are disappointing, he said.

Bloomberg News

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