Why is the pound so twitchy about Brexit?

It's only gone and done it again. Like an unworldly maiden, sterling has fallen into a swoon after reports suggested that Theresa May was aiming for a hard Brexit. That means the prime minister is prepared to swap the UK's free movement of goods and services with Europe in return for controls over immigration.

Yet the government has been consistent in implying that Mrs May wants a "red line" on border controls. It's impossible to know how deep that line will be, let alone any other plans for the thousands of issues affected by Brexit - so why does the pound keep falling given the message has largely stayed the same?

After all, the only real surprise was the vote for Brexit itself. Amid the shock and mass confusion the pound fell 10% to $1.34, its biggest slide. Uncertainty about policy or the health of the economy always spooks the markets, which do not like surprises.

Sterling is now trading at about $1.20 - the level it fell to during the "flash crash" of October 7. That, in thin overnight trading, was said to have been partly sparked by a newspaper headline about "hard Brexit".

Currency dealers - and the rest of us - hope that Theresa May's speech on Brexit on Tuesday will finally shed some light on the way ahead and help sterling to a less febrile state.

Meanwhile here, a range of experts give their views on why the pound seems to be living in Groundhog Day.

'Bad news for the pound is ingrained'

Kathleen Brooks, research director, City Index

Some have wondered why the foreign exchange market continues to be "shocked" by news about a hard Brexit; after all the UK's exit from the single market has always been on the cards and is not a new concept. I would argue that the 'Brexit theme as bad news for the pound' is such an ingrained trend at this stage that it really doesn't matter what Mrs May says or fails to say on Tuesday.

Instead, it's all about market dynamics, and right now the balance of market participants are shorting the pound. It's a bit like a tipping point - once a trend gets critical mass, then news headlines can have big impacts, as they generate another wave of selling.

Tuesday's speech in London could trigger a "material drop" in the value of the pound, according to one of the PM's aides, but is Mrs May calling the market's bluff? There is an outside chance that her speech, if it includes details on what will replace single market access, could actually benefit the pound next week.

Brexit certainty could prove to be the pound's tonic.

'From emotional anger to acceptance'

Jordan Rochester, foreign exchange strategist, Nomura

Imagine you're dealing with a Remain voter in five stages of Brexit grief - the market is in that state of mind and it flips from emotional anger and denial to acceptance. It tends to forget the direction of domestic politics and, in any case never fully prices something in until it is 100% certain.

We all have known about Theresa May's two "red lines" - immigration and sovereignty - but the market has been hoping she will soften her views. The big question the market is asking is what level of access to the EU the UK will get: will she go for the customs union, as Turkey has, or a full clean break?

If the prime minister confirms on Tuesday a "hard Brexit", the market pricing of that scenario will be much firmer - about 90% to 100% priced in.

Even so, sterling will still fall. As Bank of England governor Mark Carney says, we rely on the kindness of strangers to pay our debt in the imbalance of the current account and the trade balance in goods. For the UK to remain attractive to foreign investors it needs higher yields [higher interest rates] and or a lower currency - we will argue it will probably need a mixture of them both.

'The markets have nothing better to do'

Michael Hewson, chief market analyst, CMC Markets

It has been apparent for some time that if the UK wants to control immigration and its laws it would have to step out of the single market and customs union; Theresa May said as much last October. But the markets have nothing else better to do than focus on the value of the pound at the moment.

The last two weekends have been about what Theresa May will say on Tuesday and I'm surprised at how moderate the movement was this time: every time the pound has faced these headlines before it has thrown up its breakfast.

The markets are pricing in bad news in case - but how much of a hard Brexit is priced in? We could even see a bounce upwards if the market gets information it likes.

We haven't been able to sustain the move below $1.20 and considering the lurid headlines that's a surprise. Half of the decline is in any case down to dollar strength, with expectations of higher interest rates there and rising inflation.

'Down to $1.10 on a 'diamond hard' Brexit?'

Dominic Bunning, foreign exchange strategist, HSBC

Since the referendum there has not been a clear sign of what type of relationship the government is trying to pursue. The kind of phrase we've heard - "we want the best possible deal" - tells us nothing.

For a long period of time, the market was still of the belief the government would try to maintain some sort of membership of the single market.

We're only partly priced in, as the plans have not been fully communicated. But we're getting the sense now we will not stay in the single market and now even the customs union; the market now seems to be expecting a fully hard Brexit.

So sterling could still rise if we get a softer deal. But equally, in the very short time, it could even go down to $1.10 if it is a "diamond hard" Brexit.