The pound has shed half a per cent against the dollar this morning as worries grow that Britain and the European Union are no closer to reaching a new Brexit deal.
Prime Minister Boris Johnson is in Luxembourg this morning to meet European Commission president Jean-Claude Juncker, but traders and pundits do not expect the meeting to be productive.
The pound was 0.4 per cent lower against the dollar at $1.245, while it was 0.3 per cent lower against the euro at €1.126.
Johnson has said that any deal must remove the backstop, the device that seeks to prevent a hard border on the island of Ireland, but Juncker has insisted that the EU will not re-open the withdrawal agreement, of which the backstop is a key part.
Sterling dropped to lows not seen since the mid-1980s in August – falling through $1,20 – as Johnson looked intent on pulling Britain out of the EU without a deal, which investors think would be economically damaging.
It has since climbed four per cent, however, after MPs passed a bill that will force Johnson to seek an extension to Britain’s EU membership if a deal cannot be reached.
Yet renewed fears over Johnson’s tactics and the possibility of reaching a deal have sent sterling lower this morning.
Sterling’s fall helped buoy the FTSE 100 stock index, however, on a day when European markets were falling due to a drone attack on Saudi Arabia that saw oil prices spike. The FTSE was 0.2 per cent lower at 7,354.37.
“The possibility that the UK government and the EU will agree on a new deal before 31 October is remote,” said Commerzbank analyst Ulrich Leuchtmann.
“The EU is unlikely to give in on the Ireland backstop, while the UK government has so far not presented any new proposal to overcome this hurdle.”
“All in all, we therefore expect the UK to seek a further postponement of Brexit to 31 January 2020, making the recent GBP recovery sustainable.”