Sterling fell over 1 per cent to a more than five-month low on Thursday as UK and the EU prepared for emergency talks on a future trade deal.
Sterling was down at 91.68p against the euro in early afternoon trade, after falling to 91.78p, its lowest since March 26th. Against the US dollar it also fell to as low as $1.2924, nearing the six-week low of $1.2885 it reached the day before, before cutting back some of those losses to last trade down 0.2 per cent.
UK prime minister Boris Johnson’s spokesman said UK will reiterate its commitment to implementing the divorce deal and that the bill was aimed at creating a “safety net” for UK once it is out of the EU.
Thursday’s meeting is in addition to the ongoing negotiations this week. The EU could take legal action under the treaty with UK if emergency talks on Thursday do not reassure Brussels sufficiently that a proposed new British law will not break agreed commitments.
"There's an increased risk of a no-deal (Br)exit," said Simon Harvey, forex analyst at Monex Europe, a UK broker.
“This new bill has not only introduced the risk of falling back on WTO (World Trade Organisation) terms, but also the possibility of a hard border” in Ireland, Mr Harvey said.
‘Ahead of the crowd’
The market has turned substantially bearish on sterling and the plunge in sterling was “people guessing ahead of the crowd,” he said.
By publishing the Internal Market Bill on Wednesday, UK took steps to overturn the Brexit divorce deal signed with the EU last year, pushing ahead with its plan to act outside international law.
Investors tried to understand whether the bill to undercut the Brexit divorce deal would cause the EU to leave the negotiating table, but so far the EU stuck to its guns to continue the talks. EU negotiators are trying to gauge how to deal with London.
Goldman Sachs analysts think the British government’s moves are intended to extract “concessions on the UK’s ability to diverge from EU regulatory standards while still enjoying zero-tariff/zero-quota access to EU markets” after the transition period ends this year. – Reuters
