The pound tumbled after Northern Ireland's Democratic Unionist Party (DUP) called an abrupt halt to Brexit talks yesterday.
Sterling erased some of its losses against the dollar in early afternoon trading, rising to $1.3422, from earlier lows of of $1.3383, although it was still 0.4 per cent lower. Having fallen as much as 0.5 per cent against the euro to €1.1301 in early trading, it was 0.1 per cent lower in the afternoon, at €1.1348.
The falls came after Theresa May and Jean-Claude Juncker admitted talks had failed to progress as expected yesterday, after an 11th hour call between May and DUP leader Arlene Foster caused talks over the border between the Republic of Ireland and Northern Ireland, a key issue in Brexit negotiations, to grind to a halt.
Although MEPs said they had been shown a draft agreement which discussed a "regulatory alignment" between the two, avoiding the need for a hard border.
However, it is understood Foster, whose party has an agreement with the government to support it in the House of Commons, said she will not accept any regulatory divergence from the rest of the UK.
"The pound is looking a bit queasy after its latest ride on the Brexit rollercoaster, with sterling pulling back as the DUP forced Theresa May to dump her latest attempts at a deal with the EU," said Connor Campbell, financial analyst at SpreadEx.
"The Tories are really taking a sticky tape and cardboard approach to government, patching over problems – ie. bringing the DUP in to prop-up their parliamentary majority – with seemingly little to no foresight into what issues such solutions might cause in the future.
"So it should come as no surprise that, like so many other things in the past few months, the DUP deal has come to bite May in the behind, with the right-wing party scuppering an agreement on the Irish border – where Northern Ireland would be allowed to stay in the customs union and single market – that could have potentially unlocked trade talks between the UK and EU."
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