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Fears that the UK will end its post-Brexit transition period without agreeing to any trade deals pushed the pound to fresh five-and-a-half-month lows today.
The Brexit news overshadowed data showing the economy is recovering and news of a new trade deal with Japan.
The pound is preparing for its worst week against the euro and the dollar since mid-March, when the sell-off from the Covid-19 pandemic was at its peak, having lost around 4% against both currencies.
The British pound fell 0.6% against the euro to 0.9285 pence today and 0.3% higher against the dollar at $ 1.2770.
That followed reports that Brussels has stepped up planning for a no-deal Brexit after Prime Minister Boris Johnson’s government refused to revoke an ultimatum on breaking the divorce treaty that Brussels says will sink four years of talks. about Brexit.
“The probability between a deal and a no-deal is definitely shifting towards a no-deal, that’s very clear,” said Klaus Baader, global chief economist at Societe Generale.
“The risk of not reaching an agreement increases every day,” he said.
Morgan Stanley said the risk of Britain coming out of its transition period in “WTO terms” has risen to 40% compared to 25% previously.
News that Britain had reached its first post-Brexit trade deal with Japan failed to give the currency a lasting boost. Britain said the deal meant that 99% of its exports to Japan would be duty free.
A positive data set for the UK economy also failed to cheer traders.
The Office for National Statistics reported that the UK’s economic output expanded 6.6% in July after falling a record 20% in the second quarter.
The economy grew for the third month in a row in July with the reopening of pubs, restaurants and other sectors, but still remained around 12% below its pre-pandemic level.
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