The British pound fell over 1% to a more than five-month low on Thursday as Britain and the EU prepared for emergency talks on a future trade deal.
The pound was last down at 91.68 pence against the euro, after falling to 91.78 pence, its lowest since March 26. Versus the U.S. dollar it also fell to as low as $1.2924, nearing the six-week low of $1.2885 it reached the day before, before cutting back some of those losses to last trade down 0.2%.
Prime Minister Boris Johnson’s spokesman said Britain will reiterate its commitment to implementing the divorce deal and that the bill was aimed at creating a “safety net” for Britain once it is out of the EU.
Thursday’s meeting is in addition to the ongoing negotiations this week. The EU could take legal action under the treaty with Britain if emergency talks on Thursday do not reassure Brussels sufficiently that a proposed new British law will not break agreed commitments.
“There’s an increased risk of a no-deal (Br)exit,” said Simon Harvey, forex analyst at Monex Europe, a UK broker.
“This new bill has not only introduced the risk of falling back on WTO (World Trade Organization) terms, but also the possibility of a hard border” between Ireland and Northern Ireland, Harvey said.
The market has turned substantially bearish on sterling and the plunge in sterling was “people guessing ahead of the crowd,” he said.
By publishing the Internal Market Bill on Wednesday, Britain took steps to overturn the Brexit divorce deal signed with the EU last year, pushing ahead with its plan to act outside international law.
Investors tried to understand whether the bill to undercut the Brexit divorce deal would cause the EU to leave the negotiating table, but so far the EU stuck to its guns to continue the talks. EU negotiators are trying to gauge how to deal with London.
– Reuters