Sterling sinks to two-month low ahead of Brexit talks

LONDON (Reuters) - The pound fell to a two-month low against a broadly strong euro on Friday ahead of a new round of Brexit talks next week, but it recovered a little against a weaker dollar.

FILE PHOTO: Pound Sterling notes and change are seen inside a cash resgister in a coffee shop in Manchester, Britain, Septem,ber 21, 2018. REUTERS/Phil Noble

Brexit talks about a trade deal with the European Union have not gone well, with the clock ticking on a transition period that runs out at the end of the year.

The European Union and Britain will have to engage in accelerated Brexit talks over the summer if they are to reach a deal, an adviser to the EU’s chief trade negotiator Michel Barnier said.

Separately, Irish Prime Minister Leo Varadkar said very little progress had been made in the Brexit negotiations.

Without progress next week a no-deal scenario could be priced in and weigh on sterling, Swissquote senior analyst Ipek Ozkardeskaya said in a note to clients.

“The UK will start preparing for a no-deal divorce if we do not see material progress in talks next week,” Ozkardeskaya said.

Bank of England Chief Economist Andy Haldane said earlier this week the central bank was not close to implementing negative interest rates, which money markets are already pricing in.

“We are most concerned with the UK,” Deutsche Bank said in a note. Negative rates “would be very negative for GBP as a current account deficit country”, it added.

A coronavirus-induced recession and growing debt are also holding down the pound.

Against a broadly strong euro, sterling lost 0.2% to 90.07 pence at 1513 GMT, its weakest since March 27.

This month sterling has lost almost 4% against the euro, which has gained support from the European Commission stimulus plan announced this week.

The euro also rose as data showed inflation in the bloc continued to slow but underlying price growth held steady.

Against a weakening dollar, the pound gained 0.1% to $1.2327 at 1513 GMT, with traders fearful that tensions between U.S. President Donald Trump and China could escalate.

Prime Minister Boris Johnson said on Thursday that Britain’s coronavirus lockdown would ease next week, but the announcement has not been enough to lift the mood after the Bank of England said Britain’s economy is unlikely to recover fully in the next two to three years.

British finance minister Rishi Sunak was to tell employers on Friday that they must pay between 20% and 30% of the costs of the government’s expensive wage subsidy programme from August, according to media reports.

The country has the highest COVID-19 death toll in Europe.

Reporting by Joice Alves; Editing by Larry King and David Goodman and Jon Boyle