The pound fell against the dollar and the euro on Monday morning, amid growing fears that the UK is preparing for a “no deal” Brexit at the end of the year.
Speculation mounted over the weekend that Britain was preparing for the collapse of trade talks with the European Union, putting the UK on course to end the Brexit transition period without a deal at the end of December. It came amid reports that the UK would renege on key parts of the Withdrawal Agreement signed with the EU.
“Brexit came roaring back into the picture over the weekend — specifically fears of a no-deal,” Connor Campbell, a financial analyst at SpreadEx, said on Monday morning.
The pound was down 0.6% against the dollar by 10am, falling to $1.319 (GBPUSD=X). Sterling has fallen over 1% against the dollar over the last 5 days.
Sterling was down 0.5% against the euro to €1.1145 (GBPEUR=X). The pound is down 0.7% against the euro over the last 5 days.
The Financial Times reported late on Sunday that the UK government is preparing to table legislation that will override key parts of the Brexit withdrawal bill signed with the EU last year. Citing three people familiar with the plans, the FT said the move risked collapsing trade talks with Brussels.
Prime minister Boris Johnson appeared to position his government for this outcome overnight. National newspapers were briefed on comments the prime minister will make later today claiming a no deal Brexit would be a “good outcome” to negotiations.
Johnson will also set a deadline for mid-October to strike a trade deal, piling further pressure on negotiations. The eighth round of talks are due to begin in London on Tuesday.
“The UK government has made it clear they would be content to walk away from the table unless it gets a deal that it wants,” David Madden, a market analyst at CMC Markets, told Yahoo Finance UK.
“Come early 2021, UK-EU trading could be done on basic WTO rules, and the prospect of [this] outcome is weighing on the pound.”
Environment Minister George Eustace told BBC Breakfast on Monday the government was “committed to implementing” the Withdrawal Agreement signed with the EU. He said legislation that threatened to break parts of the agreement was simply “to iron out a few remaining technical details as to how the Northern Ireland protocol would work.” He added this would only come into play if trade talks with the EU collapsed.
Jordan Rochester, a FX strategist at Nomura, said in a note to clients on Monday: “Risks remain skewed to the downside, in our view for reasons more than Brexit. Furlough ending in October, tax rises on the agenda in the Autumn budget and the UK still suffering from low levels of economic mobility.”