Sterling hit a three-month low against the euro before recovering again, this happened as the release of the European Union’s draft guidelines for a future trade deal with Britain underlined the gap between the two sides as they negotiate a Brexit deal.
Philip Hammond said that financial services should be at the heart of a new trade deal, but the EU has rejected that approach and wants to limit the sector’s market access after Brexit.
Brussels has refused to let Britain pick and choose the parts of the EU’s single market to which it can continue to have free access, chief among them the United Kingdom’s large financial services industry.
Britain is racing to clinch a Brexit transition deal that Hammond repeated on Wednesday would be concluded later this month, but uncertainty about whether that is feasible has weighed on the pound, even as more hawkish signals from the Bank of England about rate rises this year have supported the pound.
Sterling slipped as much as 0.4 percent against a broadly stronger euro ahead of the speeches, hitting 1.1148, its weakest since Nov. 28.
All eyes will be on the ECB for clues about the speed and timing of monetary tightening and any signs it is starting to grow uncomfortable with the currency’s strength.
After rising sharply at the start of the year to hit a three-year high in February, the euro has been stuck in a range in recent weeks as the dollar alternately rose and sold off depending on global risk appetite.
Investors pushed the euro higher on expectations that the ECB, which is expected to keep monetary policy unchanged later today, will drop signals on how it plans to gradually rein in its huge stimulus programme.