Sterling slides as hopes of a Brexit deal falter
Sterling has dropped half a per cent against the dollar this morning as traders limited their expectations of a Brexit deal.
The pound surged at the end of last week when Irish Prime Minister Leo Varadkar said he saw a “pathway” to a “possible” agreement and EU chief negotiator Michel Barnier gave the green light for further discussions.
That marked two consecutive days of big leaps in the pound after GBP rose 1.9 per cent on Thursday.
Read more: Brexit talks intensify as bid to thrash out a deal continues in Brussels
Yet the noises coming from Downing Street and Brussels turned more pessimistic over the weekend as both sides said there was further work to do.
Currency traders have reacted badly to the reports and have sold off sterling this morning.
It fell 0.54 per cent against the dollar by 8.20am UK time to buy $1.257. GBP also slipped 0.38 per cent against the euro to €1.141.
Traders are digesting a number of reports, as well as a statement from Irish deputy PM Simon Coveney, who said: “We are not there yet… there’s still a lot of work to do.”
Yet he added: “A deal is possible and it is possible this month, maybe even this week.”
The pound is still trading against well above the 35-year lows against the dollar seen in August, when the chances of a deal between the EU and new Prime Minister Boris Johnson’s government seemed at their most remote.
Markets were excited at the end of last week by what appeared to be a breakthrough in talks, which sent the pound on its strongest two-day rally since the Brexit vote.
Among the reasons for investors’ optimism were reports that Johnson had conceded to the EU that there would not be a customs border on the island of Ireland. The issue has vexed talks, with the EU unwilling to countenance a hard border reemerging.
Yet EU leaders have sounded less confident on the prospect of a deal over the last two days.
Naeem Aslam, an analyst at online trader Think Markets, said: “The view from the EU lawmakers has been pessimistic over the weekend and this has taken the wind out of sterling’s rally.”
“Their tone has set alarms that a deal by the end of this week isn’t likely. If nothing materialises, the British prime minister will be forced to apply for an extension. Traders will continue to breathe and trade every headline.”
Read more: Sterling blasts past $1.26 as Brexit talk optimism buoys traders
“The lack of progress has just taken the shine off things a touch but the market remains ever hopeful and there’s support as long as talks are still going,” Markets.com chief market analyst, Neil Wilson, added.
“The more Boris gives ground to the EU, the harder the sell to the ERG and DUP. Labour seems all but certain to block whatever the government agrees with EU.”
(Image credit: Getty)