British Pound Plummets

Specter of a No-Deal Brexit Returns

The pound fell after U.K. Prime Minister Boris Johnson ratcheted up the chances of trade negotiations failing with the European Union. Sterling declined as much as 1% against the dollar to $1.3145, extending its losing run to the longest since June, as Johnson prepared to tell the EU he’s willing to let talks fail rather than compromise on what he sees as core Brexit principles.

“It looks that we are only at the beginning of a painful correction lower in the pound,” said Valentin Marinov, head of Group-of-10 foreign-exchange strategy at Credit Agricole SA, who sees the pound dropping to $1.20 in the event of no deal.

The cost of hedging against swings in the pound out to six months is at the highest level since at least July, with the three-month tenor covering the U.S. election as well as Brexit developments. Investors are refocusing on Brexit with the two sides accepting they need to reach a deal by mid-October in order to pave the way for a smooth exit at the end of the year, when the Brexit transition period ends. A so-called cliff-edge departure could add to the economic strain on the U.K. from the coronavirus.

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