Pound tumbles on no-deal Brexit fears as Boris Johnson signals he may walk away over EU demands
- The pound fell 1.3% against the dollar on Monday after Prime Minister Boris Johnson signalled he might pull out of a Brexit trade deal over EU demands.
- Investors were readying for an imminent trade deal between the UK and EU over the weekend.
- But negotations failed to break the deadlock, fueling fears over a no-deal Brexit.
- "Things can go horribly sideways pretty quickly if EU members pack their bags and go home or PM Johnson leaves the negotiating table," a chief market analyst said.
The pound slid against the dollar on Monday as investors considered the risks of the UK leaving the European Union without a trade deal.
Marking its worst slide in three months, the pound fell 1.3% to around $1.30 as of 1:10 p.m. GMT. London's benchmark FTSE 100 traded up by 0.3% in afternoon trading.
Investors were hoping for progress towards a trade deal over the weekend. But Boris Johnson looks likely to prepare for a no-deal transition within 48 hours from Monday if negotiations over key issues remain deadlocked, according to The Sun.
Talks are to resume later Monday, with Johnson and European Commission President Ursula von der Leyen speaking on the phone in the evening.
The UK economy is particularly dependent on its services sector and has leaned on the EU for trade to a large extent. One of the issues both sides can't seem to agree on is the level of access for EU boats to seas within the UK's exclusive economic zone.
Chatter over a breakthrough deal on fishing rights still hangs in the balance, however, as chief Brexit negotiator Michel Barnier and other officials have denied any agreement.
"As ever, rather than fish, the crucial issue is state aid and the procedure if there were any disputes on whether the UK had broken agreements," said Stephen Innes, chief global market strategist at Axi.
"The market is completely underhedged for a breakdown in Brexit talks," he said. "Things can go horribly sideways pretty quickly if EU members pack their bags and go home or PM Johnson leaves the negotiating table."
It seems unlikely that any agreement will be ironed out on Monday, meaning that talks will probably drag into the rest of the week, according to Innes. No agreement would be preferable for Johnson as that would leave all the economic damage blamed on the EU with Brexiteers on his side, the analyst said.
Even with a trade deal in place, it is likely there will be disruption at the UK borders once the Brexit transition phase ends on December 30, according to Rabobank analysts.