Pound Slips on Report of EU Rejecting U.K. Bid for Bespoke Deal

The pound fell to reverse earlier gains after a report that the European Union plans to reject the U.K.’s proposal for a bespoke trade deal.

Sterling snapped two days of gains after Politico reported Brussels is preparing to offer the U.K. a limited free trade deal that would risk its status as a financial capital. It said that according to leaked documents, this model would only offer “limited EU commitments to allow the cross-border provision of services” and “no direct branching in areas like financial services.”

 

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Sterling falls on report Brussels set to reject UK’s call for a bespoke trade deal. 

 

“Any newsflow which suggests a negative outcome from the EU negotiations will prove to keep the currency on the defensive,” said Jeremy Stretch, Canadian Imperial Bank of Commerce’s head of G-10 currency strategy. “If negative political headlines are accompanied by any retail spending weakness this morning this will encourage euro-sterling back above 0.90.”

Algorithmic trading is on the lookout for Brexit headlines, leading to pound selling on the Politico news, according to one Europe-based trader. With just under a month until an EU summit that will see the bloc give its verdict on whether Brexit talks can move onto trade, three-month risk reversals in sterling are now near the most bearish in more than a month.

The pound fell 0.1 percent to $1.3164 after a low of $1.3135. It was little changed at 89.54 pence per euro. The yield on U.K. 10-year government bonds was steady at 1.28 percent ahead of a sale of 2.5 billion pounds ($3.3 billion) of July 2027 debt.

Retail figures are due at 9:30 a.m. London time and are expected to fall 0.4 percent year-on-year excluding auto fuel sales. The Bank of England will support the economy no matter what the results of the Brexit negotiations are, Governor Mark Carney said on Thursday.

Source

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