Markets

Sterling stalls after news of Brexit impasse

Government insists it will not extend transition period

Photograph: iStock

Thu May 28 2020 - 09:33

The pound was flat against the dollar and euro in early London trading on Thursday, near the lows reached the days before on reports that Brexit talks are at an impasse.

Sterling fell 1 per cent after Britain told the European Union on Wednesday it needed to break a fundamental impasse to clinch a Brexit trade deal by the end of the year.

British Prime Minister Boris Johnson will resume Brexit talks in person in Brussels next month, the Times newspaper reported on Thursday. The government insists it will not extend the transition period.

The pound is near its lowest levels in more than three decades, as it grapples with Brexit, the prospect of negative interest rates in Britain, a deep recession and a growing pile of debt.

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Bank of England Governor Andrew Bailey said on Wednesday that the central bank was right to consider cutting rates below zero to give the economy an extra boost, but that careful thought would need to be given to the side-effects of doing so.

"The question whether the BoE key rate is slightly above or below zero does not really matter," Ulrich Leuchtmann, head of FX and commodity research at Commerzbank wrote in a note to clients.

“Monetary policy in the UK - just like almost everywhere else in the world - has pretty much reached the end of the line,” he said.

Against the dollar, the pound held near Wednesday’s close at $1.2269, having lost 7.5 per cent of its value so far this year .

Versus the euro – which was strengthened by proposals for a bigger-than-expected EU-wide recovery fund – the pound was up less than 0.1 per cent since New York’s close, at 89.76 pence. It had held steady overnight and strengthened in early London trading .

The market has turned increasingly short on the pound for the last 11 weeks straight, according to weekly futures data .

Britain has the worst coronavirus death toll in Europe. A Covid-19 test and trace service is due to start in England on Thursday to allow the loosening of lockdown measures for most of the population. – Reuters

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