The pound has fallen sharply against the dollar and the euro as investors fret over the fate of Britain’s post-Brexit deal.
Sterling had already suffered significant losses yesterday and this morning tumbled more than a cent against the dollar to $1.3046, its lowest level since early August. The pound also fell nearly a euro cent to sit at €1.1058.
The currency has been put under pressure by a string of negative news for those hoping that Boris Johnson’s government can thrash out a post-Brexit trade deal.
Johnson said yesterday he was prepared to walk away if an agreement was not reached by October 15.
Today sterling was hit by reports that the head of the government’s legal department, Jonathan Jones, has resigned amid concerns that Downing Street could be trying to rewrite parts of the EU withdrawal agreement.
Markets.com chief market analyst Neil Wilson said: “Whilst we should caution that this indicates disharmony, it is also possibly an overreaction by the market to a negative headline, and does not necessarily make a deal with the EU less likely than it was before.
“Nonetheless it highlights the brinkmanship pursued by Johnson’s government in the talks – even suggesting that Britain could unilaterally rewrite the withdrawal agreement has raised the EU’s hackles and clearly raises the stakes as the two sides commence the 8th round of official talks today. Expect more negative headlines, more risk and more volatility.”
Wilson added: “A positive surprise seems increasingly unlikely, but for this reason would be all the more dramatic should it emerge and produce a sharp reversal for GBP.”
Separately, rising tension between the UK and EU over trade is proving to be a boon for the nation’s first syndicated bond offering since June, Bloomberg reported.
The UK will sell £8 billion ($10.5 billion) of 15- year debt after attracting bids in excess of £76 billion , the newswire said. The bonds were priced at about 13 basis points over similar-maturity debt.
“The approaching Brexit deadline and trash talking ahead of the next round of negotiations is dampening risk appetite,” prompting investors to favor safer assets, said Antoine Bouvet, a senior rates strategist at ING Bank . Also, “the last Bank of England meeting boosted market hopes of another round of quantitative easing and seemed to downplay the odds of negative rates,” he said.
Benchmark UK gilts extended gains on Tuesday to take yields down three basis points to 0.22%.