Pound slides as investors fret over Brexit talks
The pound fell sharply as investors began to question whether a Brexit deal would be reached, with traders unwinding bets made last week amid fresh uncertainty over negotiations.
Sterling tumbled 1.3 per cent against the dollar to $1.326, having hit a two year high of $1.354 on Friday. The pound also slid against the euro, dropping 1.2 per cent to €1.094.
Brexit talks resumed today following revelations at the weekend that the two sides remain far apart on the issue of fishing rights. Both sides expressed scepticism over the weekend that a deal would be reached.
Should the talks end in no deal, the UK will crash out on to World Trade Organization terms. This would lead to higher tariffs and disruption to the economy.
Investors have driven up the price of the pound since July. They have cheered the fact that both sides appeared to be moving closer together. Amid positive reports last week, the pound again climbed.
But those bets are being unwound today as traders seek to cover all possibilities.
“Brexit worries are back in play today, with hopes of a breakthrough in talks fast vanishing to the detriment of the pound and FTSE 250,” said Joshua Mahony, senior market analyst at IG.
“Fortunately for FTSE 100 bulls, the sharp devaluation seen in the pound has helped lift the index to outperformer status given the weakness seen throughout mainland Europe.”
Lower pound boosts FTSE 100 amid Brexit fears
The FTSE 100 was 0.5 per cent higher. A lower pound traditionally boosts the index. It makes the overseas earnings of its constituents worth more in relative terms.
However the FTSE 250 slipped 0.7 per cent amid worries about the impact of no deal on the UK economy.
Many traders said they were still optimistic a deal would be reached, however. Ranko Berich, head of market analysis at Monex Europe, said: “Our view remains that a narrow trade deal covering goods is the likeliest outcome.”
Yet he added: “This morning’s news does not raise our confidence – or the market’s – in this scenario.” Berich said that if talks collapsed sterling could fall around three to eight per cent from current levels.
The yield on the UK 10-year bond fell 0.054 percentage points to 0.299 per cent. The move showed bond prices rising as investors sought safety amid Brexit uncertainty.