Sterling weakened today as traders worried about the obstacles keeping the European Union and Britain from reaching a Brexit trade deal.
The pound has risen in recent sessions, propelled by a sense that Britain and the EU, whose leaders are meeting today, will secure a trade deal by December 2020, when Britain’s transition period after leaving the EU runs out.
But sterling remains below a 2020 high of nearly $1.35 hit in early September. Many investors reckon that even if a deal is reached, it will be a limited one.
British Prime Minister Boris Johnson had proposed an October 15 deadline to conclude talks for an agreement, but EU leaders meeting today will agree to extend the talks.
They want concessions on the contentious subjects of fisheries, fair competition and dispute resolution.
Boris Johnson has said he is willing to end the transition period without a trade deal, but many in the market have called his bluff.
Although volatility has risen, sterling has not seen the plunges in value that it suffered in 2018 and 2019 before previous Brexit deal deadlines.
Goldman Sachs said in a note today that a thin Brexit trade deal was likely to be struck by early November.
Sterling dropped as much as 0.6% to $1.2934, partly because of investors buying dollars amid a market-wide rush to safety.
It was down 0.2% against the euro at 90.48 pence.
Sterling traded as strong as 88.66 pence in early September, then fell as low as 92.90 pence by the middle of the month, after London said it would undercut its earlier divorce treaty with Brussels.
Commerzbank analyst Ulrich Leutchmann said “constant postponement” of deal deadlines seemed plausible, calling Brexit “the unsolvable permanent subject.”
“In this scenario sterling remains trapped in a state of suspense, which is roughly marked by the range of 0.85 to 0.95 in euro-sterling,” he said.
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