Tuesday 17 December 2019 9:00 am

Sterling sinks as PM vows not to extend Brexit transition period

Sterling sank in early trading today to hit the GBP/USD exchange rate as Boris Johnson revealed he wants to leave the EU completely with or without a deal by December 2020.

The Prime Minister’s plan to bring his Brexit deal back to parliament with none of the concessions he made before winning his 80-seat majority threatened to eradicate the bump sterling enjoyed after the Tories’ election victory.

Read more: Boris Johnson amends Brexit bill to rip out concessions

Instead he will include an amendment to block any prolonging of the Brexit transition period due to end this time next year, whether or not Britain scores a trade deal with the bloc before then.

“That means no possible way to extend the transition period,” Neil Wilson, chief market analyst at Markets.com, said.

The pound slid 0.91 per cent against the dollar to 1.318 in morning trading. It also fell 0.85 per cent against the euro to 1.183.

“I must confess to believing he wouldn’t need to be so drastic, that a large majority offered the flexibility yet strength a government craves in deal making,” Wilson added.

But he warned: “This sets up another cliff-edge and could create yet more months of uncertainty for investors just when we thought all was squared away.”

Read more: FTSE 100 rises two per cent on trade war and UK election optimism

“It appears Prime Minister Johnson is swearing to make the annoying Brexit saga an open-ended book affair,” Stephen Innes, chief Asia market strategist at Activ Trader, added. 

“The headline sent shivers down the spine to those who believed that the PM would use his significant majority and shift to a more harmonious relationship with the EU.”

Sterling’s weakness pushed the FTSE 100 up higher to 7,532 points in early trading as exporters benefited from the cheap pound.

But Jasper Lawler, head of research at London Capital Group, said traders mujst scrap the idea that Johnson’s large majority would allow him to backtrack on his pledge not to prolong Brexit.

“We are now waiting for the other shoe to drop – that Boris will not pursue a softer Brexit just because he has a large majority and some new MPs from constituencies with manufacturing jobs,” he added.

Read more: Boris Johnson to bring his Brexit bill to parliament on Friday

But he suggested sterling will recover if and when Johnson’s Brexit bill is passed by parliament.

“We remain positive on sterling,” he said. “The withdrawal agreement finally getting passed in parliament, possibly this Friday should help the pound get its mojo back.”

Lawler warned that “some of the optimism over the US-China trade deal has started to fade and the possibility the UK may exit the from the EU next year without a deal has reared its ugly head again”.

France’s Cac and Germany’s Dax registered drops of 0.34 per cent and 0.36 per cent respectively, but Asian stocks climbed as optimism about a US-China trade deal continued to buoy shares. The Nikkei rose 0.47 per cent while Hong Kong’s Hang Seng index climbed 1.2 per cent.