Mubasher: The UK departure from the European Union (EU) without a deal, could drag the sterling pound (GBP) to par with the US dollar, according to Morgan Stanley.

The US lender said a retreat of the UK pound to historic troughs of $1 and $1.10 would be market’s worst-case scenario, amid growing no-deal Brexit risks, Bloomberg reported.

European officials said that last week’s meeting of Brexit negotiators was the toughest of the past three years, while they expected discussions to be more hostile under the next UK government.

If the next prime minister chooses to follow more hardline stance on negotiations with the European leaders, the UK currency could plunge to a range of $1.10 to $1.20, Morgan Stanley strategists said.

The pound dropped to a two-year low on Wednesday after Boris Johnson and Jeremy Hunt, the contenders in the race to become the nation’s next prime minister.

“The pound has come under intense selling pressure since Prime Minister May withdrew from her party leadership position, leaving markets with increased concern that the UK may be heading towards a harder Brexit,” the strategists were quoted by Bloomberg.

It is worth noting that the sterling fell below $1.10 in 1985, when it briefly tapped $1.05, as the US lowered the dollar to counter the strength in the greenback.

Morgan Stanley’s warning echoed the similar concerns raised by the Bank of England (BoE) last November, when it said that the sterling could fall below the parity level with the dollar, should the UK crashes out of the EU without a transition agreement.

By 3:57 pm GMT, the GBP/USD pair rose by 0.22% to $1.2434, as the EUR/GBP pair inched down by 0.05% to GBP 0.9031.