As UK steps up no-deal Brexit preparations sterling falls sharply against the U.S. dollar and the euro on concerns over the divorce deal.
The clock is ticking on an October deadline for a trade deal and the end of the status quo transition arrangement in late December.
Britain began a fresh round – the eighth one – of Brexit trade talks. Prime Minister Boris Johnson will tell EU negotiators that unless a deal is reached by mid-October, the UK will walk away from the table.
Britain is reportedly planning new legislation that will override key parts of the Brexit Withdrawal Agreement. Such a move could jeopardise the whole treaty and create frictions in British-ruled Northern Ireland.
The Financial Times reported that the government’s legal department head quit in disagreement with Prime Minister Boris Johnson’s office.
The UK warned the EU that it was ramping up preparations to leave the bloc without an agreement. The two sides bicker over rules that govern nearly $1 trillion in trade. As for the EU, it’s warning the UK that it can’t back out on Brexit promises already made.
The sudden return of fears about a no-deal Brexit has frightened investors. After several months of rallying against the dollar, this possibility knocked the pound 4 cents lower since the start of the month.
The pound dropped 1% to $1.3040, its weakest since Aug. 13. The sterling also falls sharply against the euro – to a two-week low of 90.40 pence.
Implied sterling-dollar volatility also rose, hitting 10% for the first time since mid-June.
Eurozone data also showed its economy shrivelled by slightly less than initially estimated in the second quarter. But the drop was still the sharpest ever as consumer spending caved in due to COVID-19 restrictions.
Forex – Sterling falls sharply as Brexit talks thrown into crisis
Any negative Brexit-related headline prompts traders to sell the pound, already beset by woes. The euro and dollar kept moves to a minimum on Tuesday ahead of the ECB’s post-summer meeting on Thursday.
The dollar index was slightly stronger at 93.115 and firmed marginally against the euro at $1.1816.
Elsewhere, the dollar traded firmly against the Japanese yen amid talk of a snap election. The yen last changed hands at 106.26 per dollar. Traders also sold sterling against the yen. It last traded at a two-week low of 138.52.
The Australian dollar reversed course to drop to $0.7250.
The New Zealand dollar dipped to $0.6660 following a Sunday statement from the central bank, raising the prospect of negative rates.
In commodity markets, oil fell below $42 a barrel, its fifth session of decline. Concerns that a recovery in demand could weaken as coronavirus infections flare up around the world weigh on oil. U.S. crude futures fell 3.3% to $38.46 per barrel.
Gold prices softened, although rising doubts over the economic recovery from the COVID-19 slump limited losses. Spot gold was little changed at $1,9283.87 per ounce.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money