The Brexit-battered pound extended its losses against the dollar and the euro, as investors became more cautious about the risk of Britain and the EU failing to agree on a Brexit deal, with just three weeks until the Dec. 31 deadline.
The pound dropped not long after 10pm on Wednesday, when a dinner between UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen ended with both sides still “far apart”.
“At the current juncture, the balance of risks appears to be shifting to the downside for the pound as the end game approaches for Brexit talks,” Lee Hardman, currency analyst at MUFG, wrote in a note to clients. “Hopes for a last-minute trade deal are fading.
The British currency has been jittery on Brexit headlines, dropping in response to news suggesting a deal is unlikely and rising when hopes are raised. Many investment banks still think that a Brexit deal will be reached at the last minute.
Positioning on the pound is only slightly bearish – speculators have cut their net short position in recent weeks – meaning that a short squeeze is not expected in the event of a positive outcome.
ING FX strategists said that, although the pound is likely to trade “on the soft side” on Thursday as a result of the disappointing outcome of the Johnson and Von der Leyen dinner, they think that a deal will be eventually reached.
Next Sunday was set as a new deadline by which a decision about whether talks should continue will be made.
Elsewhere, Britain’s economic recovery almost ground to a halt in October, GDP data showed.