Sterling on Friday largely brushed off British Prime Minister Boris Johnson’s announcement that it was time to prepare for a no-trade-deal Brexit, as analysts said the majority of market participants still expect a deal will be reached.
Markets had been waiting for Johnson to say whether the UK would quit trade talks after the EU leaders’ summit on Wednesday and Thursday, a self-imposed deadline to leave the negotiating table if there was no agreement.
The pound dropped sharply when Johnson said that the UK should get ready for a no-deal outcome, losing as much as 0.8 percent, but rebounded as he stopped short of announcing that the UK would walk away from the talks.
“Preparation for a no-deal is a very different statement to an actual no-deal,” said Neil Jones, head of foreign-exchange sales at Mizuho Financial Group Inc.
“The initial market reflex action was to pound on elevated chances of a no-deal. However, the majority of participants do expect a deal of some form to emerge, despite the recent headlines,” he said.
Johnson’s spokesman later said that trade talks are over, effectively ended by the EU not changing its negotiating position.
The EU’s most powerful leaders rushed to say that they wanted a trade deal and that talks would continue, though not at any price.
By early afternoon, the pound was up 0.2 percent on the day at US$1.2920, but ended the week about 1 percent lower at US$1.2918.
Against the euro, it was broadly flat on the day at ￡0.91.
Kit Juckes, head of foreign-exchange strategy at Societe Generale SA said most people still expected a last-minute deal to be reached, but that that view would be reconsidered as the Dec. 31 deadline gets closer.
“Euro-sterling is still under 0.91 — sterling’s not in free fall here by any stretch of the imagination,” he said.
The possibility of negative rates also presents a downside risk to sterling, with analysts saying the Bank of England is more likely to cut rates below zero if there is an economically damaging no-deal after the Brexit transition period ends on Dec. 31.
The UK has been putting more of the country under stricter lockdown measures this week in a bid to contain a second wave of COVID-19, adding to worries about the economic fallout from the pandemic.
The US dollar paused on Friday, but posted its biggest weekly gain in a month amid growing market caution over a global surge in COVID-19 cases and fading prospects of a US stimulus package before the Nov. 3 US presidential election.
The US dollar index fell 0.1 percent to 93.72, up 0.7 percent for the week.
In Taipei, the New Taiwan dollar fell against the greenback, losing NT$0.019 to close at NT$28.979, a drop of 0.2 percent from Monday.
Additional reporting by CNA, with staff writer
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