Pound Losses Accelerate After Brexit Talks End in Stalemate

  • EC press conference highlights growing EU-U.K. Brexit rift
  • There is a chance that U.K. risk premium will widen: Investec

Barnier Says Brexit Progress Far From Sufficient

The pound fell to a one-week low after Brexit negotiations between the U.K. and the European Union ended in acrimony.

Sterling’s losses contributed to the currency’s biggest monthly decline since October after Michel Barnier, the EU’s chief negotiator, said the third round of talks were “far from seeing sufficient progress.” The gridlock whittles the time the U.K. has to reach a trade deal and a transitional arrangement before it comes out of the EU in March 2019.

The pound has lost more than 13 percent of its value against the dollar since the Brexit vote in June last year as investors fret how the $2.6 trillion economy will fare once the U.K. exits the EU. Uncertainty surrounding the Brexit negotiations are weighing on the wider economy as well, with UBS Group AG said to be leaning toward making Frankfurt its trading headquarters inside the EU.

“The risk of a no transitionary agreement seems to have increased today given the strong words from Barnier,” said Shilen Shah, a fixed-income strategist at Investec Wealth & Investment. “The key hazard for markets is that today’s disagreement is an indicator of where future negotiations are heading, with the danger that the risk premium on U.K. assets will widen if the talks implode with no agreement.”

The pound declined 0.5 percent to trade at $1.2863 as of 1:22 p.m. in London, after touching 1.2853, the weakest since Aug. 25. Sterling has tumbled 2.7 percent this month against the dollar, the second-worst performance among the Group-of-10 currencies.

Elsewhere:

  • Prime Minister Theresa May said she will still run for re-election in an interview to ITV in Japan, though her own lawmakers doubted her prospects
  • Comments earlier in the day from Bank of England policy maker Michael Saunders that a modest interest-rate increase was warranted did little to support the British currency
  • GBP/USD support at 1.2852, 61.8% Fibonacci of Aug. 24 advance; resistance at 1.2938-40, Aug. 30 high, 55-DMA
  • EUR/GBP climbs 0.2% to 0.9212 after reaching 0.9307 on Aug. 29, its highest since Oct. 7. Thursday’s move extends the euro’s advance this month to 2.8%
    • Scope for consolidation and re-alignment with short-term average lines before renewed jump higher
  • Yield on 10-year gilts little changed at 1.04%, after falling to 0.99% on Tuesday, its lowest since June 21

— With assistance by Sejul Gokal

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