Sterling falls as doubts grow about Brexit talks
* Pound on Thursday had biggest gain in months
* Traders say no-deal Brexit fears remain elevated
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
(Adds details, updates prices)
By Tommy Wilkes
LONDON, Aug 23 (Reuters) - The pound fell on Friday after
enjoying its biggest one-day gain in months, as investors
reassessed whether British Prime Minister Boris Johnson had made
any progress in convincing the European Union to renegotiate the
German Chancellor Angela Merkel's comments on Thursday that
a solution to the Irish border question could be found before
Oct. 31, the deadline for Britain to leave the EU, triggered the
pound's biggest one-day rise against the dollar since May.
Against the euro, sterling gained the most in five months.
But many analysts said the reaction to Merkel's comments
reflected market positioning rather than any confidence Britain
and the EU would be able to renegotiate their agreement to avoid
a no-deal Brexit.
"The market is very short and that is naturally going to
make the market very sensitive to any news (that makes them
think) ... have we got this wrong?," said Jane Foley, a
strategist at Rabobank.
"I've not read an awful lot into these moves," she said,
adding that thin summer liquidity had exacerbated this week's
Kamal Sharma, G10 forex strategist at Bank of America
Merrill Lynch, said the market had "over-interpreted" Merkel's
BAML took off its last remaining sterling position before
the move on Thursday, and Sharma said the bank prefers to trade
sterling volatility instead because "the range of (Brexit)
options and possibilities are quite big".
The British currency fell as much as 0.5% to $1.2195
on Friday, retreating from Thursday's three-week high.
It later rebounded slightly, trading 0.2% lower at $1.2235 by
Versus the euro the pound dropped as low as 90.80 pence
before recovering to 90.53 pence, down 0.1%.
Sterling has fallen since Boris Johnson became prime
minister in late July. Investors fear his government will take
Britain out of the EU in October without a transition deal.
Most economists think a no-deal Brexit would deliver a
significant blow to the British economy and cause a further rout
in the pound - sending it towards parity with the euro and below
$1.20 - as international investors dump the currency.
Many banks have raised their forecasts for a no-deal exit
since Johnson took office, although analysts say that the
consensus among most banks is that Britain will still avoid a
That may be changing, however. Barclays economists this week
said a no-deal Brexit was now "the most likely outcome" and "our
new working assumption".
They also said that the British government's tactics,
including by undermining potential negotiations with the EU, had
increased the risk Brussels did not grant an extension to Brexit
if London requested one.
(Additional reporting by Olga Cotaga
Editing by Larry King and Kirsten Donovan)
First Published: 2019-08-23 10:26:51
Updated 2019-08-23 16:41:41
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