October 18, 2018 / 8:36 AM / 25 days ago

Pound falls after Britain's May says EU proposal on border unacceptable

LONDON (Reuters) - The pound fell to intraday lows in late Thursday trade, as summit talks in Brussels failed to resolve a Brexit standoff between London and the EU over the status of the Irish border, an issue playing an increasingly dominant role in negotiations.

Prime Minister Theresa May said late in the day that a solution to the impasse might come through the option of extending the Brexit transition period.

But that failed to lift the British currency from lows hit after she earlier said European Union proposals for avoiding a hard Irish border were unacceptable.

Sterling fell as low as $1.3057, down 0.4 percent on the day, from near $1.31 before May spoke, and dropped 0.3 percent versus the euro to 88.03 pence.

Tim Graf, State Street Global Markets’ EMEA Head of Macro Strategy, said that despite the pound looking “very cheap” Brexit remained a major risk.

“The market seems very complacent about the headlines which really don’t look constructive,” he said.

European Council President Donald Tusk said on Thursday that he was sure EU leaders would respond positively to any request from Britain for a longer transition period.

Elsa Lignos, global head of FX strategy at RBC, said a longer transition period made the need for a ‘backstop’ on Ireland - a proposal aimed at avoiding a hard border - less likely.

“It remains to be seen if Brexiteers in her party can be persuaded to sign on,” Lignos said.

RETAIL SALES FALL

A flurry of data this week, including the strongest wage growth for a decade, have briefly focused traders’ attention on the UK economy and away from Brexit negotiations, although investors say the pound remains at the mercy of the talks.

On Thursday, data showed UK retail sales fell by the most in six months in September.

FILE PHOTO: A shop assistant counts piles of British Pound Sterling banknotes at an Apple store in London, Britain November 18, 2017. REUTERS/Russell Boyce

The sales volumes dropped by 0.8 percent in September from August - a bigger fall than economists had expected in a Reuters poll - after the largest decline in food purchases since October 2015, official data showed.

“We’ve had three data points from the UK in the last three days with only the unemployment figures providing any real support for the pound,” David Cheetham, chief market analyst at broker XTB, said.

“Despite this, sterling continues to keep calm and carry on despite the obvious Brexit threat with negotiations on this front clearly not progressing as many would’ve hoped.”

Reporting by Tommy Wilkes and Sujata Rao; Editing by Robin Pomeroy and Susan Fenton

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