Sterling fell on Thursday as Britain and the European Union continued their Brexit negotiations, before the late June deadline by which the UK needs to say whether it wants an extension of the transition period.
British officials said the UK might be able to reach a compromise on fisheries with the EU earlier this week, sending the pound higher. An improvement in risk sentiment had also helped the pound, pushing it up more than 3% in one week.
But a strengthening dollar and worries that Britain will exit the EU without a trade deal at the end of the year weighed on the British currency, which was last trading 0.5% at just above $1.25. Against the euro, sterling was down 0.1% at 89.49 pence.
“My sense is that the market is selling sterling again and this will continue this month on fear that we might not get a deal or an extension, so there are some preparations for a worst-case scenario -- Brexit without a deal, which is a possibility,” said Neil Jones, head of European hedge fund sales at Mizuho.
A no-deal Brexit is not fully factored into the price of sterling at the moment, Jones said. “It doesn’t bode too well for sterling at the moment,” he added.
{{/usCountry}}A no-deal Brexit is not fully factored into the price of sterling at the moment, Jones said. “It doesn’t bode too well for sterling at the moment,” he added.
{{/usCountry}}Prime Minister Boris Johnson’s spokesman urged companies on Wednesday to prepare for Britain’s leaving the EU single market and customs union at the end of the year regardless of the outcome of talks.
Some market participants, however, believe that the December transition deadline might get extended because of the new coronavirus pandemic, which slowed down Brexit negotiations, keeping the pound near the top of its recent trading range.