Sterling sinks following fears of no-deal Brexit
PM Boris Johnson has given an Oct. 15 deadline for a post-separation trade agreement with EU
The British pound sank Monday after Prime Minister Boris Johnson appeared to revive investor fears of a no-deal Brexit, dealers said.
Heading into the half-way point in London, sterling deepened losses to shed 1.0 percent versus the dollar. It was also down 0.8 percent against the European single currency.
Johnson has given an October 15 deadline for a post-Brexit trade agreement with the European Union, brushing off fears about “no-deal” chaos if talks fail.
“If we can’t agree by then, then I do not see that there will be a free-trade agreement between us,” Johnson said, insisting it would still be a “good outcome” for Britain. The Financial Times meanwhile reported that Johnson is planning legislation to override parts of the withdrawal treaty that Britain and the EU agreed last year.
The report cited three people close to the plans as saying a bill to be put before parliament this week would undermine agreements relating to Northern Ireland customs and state aid.
“Judging by today’s price action in the pound, investors appear to believe that Johnson has indeed resurrected the specter of a no-deal Brexit,” ThinkMarkets analyst Fawad Razaqzada told AFP. “However, I reckon it is all part of negotiation tactics — and in the end a cliff-edge Brexit will probably be avoided as it is not in either party’s interests.” In response to the report, Downing Street said only that it was still “working hard to resolve outstanding issues with the Northern Ireland Protocol” but was considering “fall-back options.”
EU leader Ursula von der Leyen warned that Britain is legally
obliged to respect the Brexit withdrawal agreement, which must form the basis of bilateral relations going forward.
The eighth round of negotiations resume in London this week, with both sides talking increasingly tough, amid accusations of intransigence and political brinkmanship.
The weak pound meanwhile handed a fillip to the London
stock market, because it boosts the share prices of multinationals earning in dollars.
Frankfurt and Paris also charged higher as investors snapped up bargain stocks following heady losses last week.
Asian equities struggled Monday, with a mixed US jobs report offsetting a pledge from Federal Reserve boss Jerome Powell that interest rates would remain rock-bottom for years.
China-US tensions and a lack of progress in Washington stimulus talks — all against the backdrop of the coronavirus pandemic — were keeping markets from surging. Wall Street nursed more losses on Friday, albeit shallower than Thursday’s rout that hammered the tech sector as traders took profits from months of huge gains.
Judging by the price action in the pound, investors appear to believe that PM Boris Johnson has indeed resurrected the specter of a no-deal Brexit.
Fawad Razaqzada
ThinkMarkets analyst