Pound Slips on Report of EU Rejecting U.K. Bid for Bespoke Deal

  • Sterling snap two days of gains on trade deal concerns
  • Pound ‘on the defensive’ amid negative Brexit news: CIBC

Why Brexit Talks Might Not Move Forward in December

The pound fell to reverse earlier gains after a report that the European Union plans to reject the U.K.’s proposal for a bespoke trade deal.

Sterling snapped two days of gains after Politico reported Brussels is preparing to offer the U.K. a limited free trade deal that would risk its status as a financial capital. It said that according to leaked documents, this model would only offer “limited EU commitments to allow cross border provision of services” and “no direct branching in areas like financial services.”

“Any newsflow which suggests a negative outcome from the EU negotiations will prove to keep the currency on the defensive,” said Jeremy Stretch, Canadian Imperial Bank of Commerce’s head of G-10 currency strategy. “If negative political headlines are accompanied by any retail spending weakness this morning this will encourage euro-sterling back above 0.90.”

Algorithmic trading is on the lookout for Brexit headlines, leading to pound selling on the Politico news, according to one Europe-based trader. With just under a month until an EU summit that will see the bloc give its verdict on whether Brexit talks can move onto trade, three-month risk reversals in sterling are now near the most bearish in more than a month.

The pound fell 0.1 percent to $1.3164 after a low of $1.3135. It was little changed at 89.54 pence per euro. The yield on U.K. 10-year government bonds was steady at 1.28 percent ahead of a sale of 2.5 billion pounds ($3.3 billion) of July 2027 debt. 

Retail figures are due at 9:30 a.m. London time and are expected to fall 0.4 percent year-on-year excluding auto fuel sales. The Bank of England will support the economy no matter what the results of the Brexit negotiations are, Governor Mark Carney said on Thursday.

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