Sterling hit a six-week low below $1.29 before bouncing back above $1.30 as Britain unveiled draft legislation for post-Brexit life, stoking concern that trade talks with the European Union could be derailed.
The text of the legislation – called the Internal Market Bill – acknowledged “inconsistency” with international law and prompted a rapid rebuke from the EU’s chief executive.
It also raised the possibility of Britain exiting the EU single market in four months with no replacement trade agreement in place, analysts said.
Already on the backfoot against the dollar, sterling fell to $1.2885, its lowest level since July 28, after the bill was published.
That came as EU chief negotiator Michel Barnier arrived in London for fresh talks, suggesting to some that Prime Minister Boris Johnson might be trying to goad the bloc into storming out of negotiations.
But after EU sources told Reuters the bloc would not seek a suspension of talks, the pound bounced back above $1.30.
Prime Minister Boris Johnson announced new restrictions on social gatherings in England on Wednesday, saying there was a clear need to act after a spike in COVID-19 infections.
Speaking at a televised news conference, flanked by his top medical advisers, Johnson said groups of more than six people would be banned from meeting, in what he called a “rule of six” that was easier to understand than previous guidance.
“I wish that we did not have to take this step, but as your prime minister, I must do what is necessary to stop the spread of the virus and to save lives,” he said, stressing that police and other agencies would be enforcing the rules more actively.
“I will be absolutely clear. This is not, these measures are not, another national lockdown. The whole point is to avoid a second national lockdown,” he added.