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Tags: pound

Pound Falls as Investors Question Progress in Brexit Trade Talks

image of british pound that has been broken
(Dreamstime)

Sunday, 06 December 2020 03:27 PM EST

The pound dropped to start the trading week as investors questioned how close Britain and the European Union are to sealing a final Brexit trade agreement.

Sterling led losses among Group-of-10 currencies, falling as much as 0.6% to $1.3360 in early Asia trading, with negotiators pushing for a deal before Monday evening. Signs are emerging of a possible compromise on the problem of fisheries, yet traders had speculated on a weekend deal and doubts are setting in.

“At some point everyone has to say the risks are too high to hold any exposure with this yo-yo of optimism and pessimism,” said Jordan Rochester, a currency strategist at Nomura International Plc. “The risk now is that optimism turns to pessimism and we have to hedge for a no-deal Brexit.”

Concerns about the end of the transition period on Dec. 31, when Britain could crash out without a deal, are flashing in the options market. The relative cost of hedging a weaker pound over the coming month rose for a 13th day on Friday, for the longest stretch of increases in 12 years.

The increased demand for hedging comes amid a five-week rally in the pound in the spot market. Hopes that the EU and U.K. can reach a deal have boosted the pound by more than 8% against the dollar since June as traders leaned toward a last-minute resolution after more than four years of Brexit drama, and the pound rose to a two-year high of $1.3539 on Friday.

But traders are getting jumpy as the deadline for an agreement nears. Many investors expect the two sides to strike a deal, which leaves the currency vulnerable to any setbacks that could upend that assumption.

The EU has said that a summit of its 27 leaders that begins on Thursday now marks the effective deadline for a Brexit deal.

Analysts in a Bloomberg survey last month said they expected sterling to rise to $1.35 by mid-2021 in the event of a deal, noting though that any further upside could be limited due to the impact of the pandemic on the U.K. economy.

© Copyright 2022 Bloomberg News. All rights reserved.


StreetTalk
The pound dropped to start the trading week as investors questioned how close Britain and the European Union are to sealing a final Brexit trade agreement.
pound
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2020-27-06
Sunday, 06 December 2020 03:27 PM
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