Sterling slips to six-week low vs dollar as Brexit jitters take toll

LONDON: Sterling fell to a six-week low against a broadly firmer dollar on Tuesday, as Prime Minister Boris Johnson’s tough stance on European Union trade talks renewed concern that a deal may not be reached by the end of a transition period. The EU and Britain clashed over a post-Brexit trade deal on Monday, with the two sides setting out very different visions of a future relationship that could result in the most distant of ties.
Sterling, which shed more than 1% against the dollar and the euro on Monday, extended its falls on Tuesday.
The pound slipped 0.4% to $1.2942 GBP=D3, its lowest since Dec. 25. It fell by 0.3% versus the euro to 85.35 pence EURGBP=D3, its weakest since Jan. 21.
“The market is a little bit spooked by the distance that remains (between the EU and Britain) and the concern that there may be very little potentially compromise done in a relatively short space of time,” said Jane Foley, a senior currency strategist at Rabobank in London.
She said that although uncertainty had died down following the December election, “now the market’s focus has been drawn to the fact that there could still be very little put in place by way a trade deal if these talks don’t go well”.
Britain and the EU have until the end of the year, when a transition period expires, to secure a deal on trade and future relations.
Johnson has said Britain will not adhere to the bloc’s rules and regulations. The EU has warned Britain that access to its single market of 450 million people will depend on how far London agrees to adhere to such rules on environmental and labour regulations.
Positioning data from the U.S. Commodity Futures Trading Commission shows speculators’ bullish bets on sterling had moderated in the week to Jan. 28 but remain broadly intact.
This week’s selloff suggests those positions are being unwound and that the pound could be set for further weakness.
Sterling is on track for its worst week against the euro and the dollar since mid-December.
“Despite Brexit being officially delivered, for markets, this is not the case,” analysts at RBC Capital Markets said in a note.
“While the two documents released (by the UK and EU) should clearly be seen as an opening gambit only, it drives home the point that reaching an agreement in a quite short span of time appears ambitious and might harbour some downside risks to the UK economy (and assets as well as sterling) as the year progresses.”

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