Sterling struggles as Brexit talks go nowhere

LONDON (Reuters) - The British pound dropped to its weakest this month on Thursday amid doubts that Brexit negotiations between the ruling Conservative and opposition Labour parties would get anywhere. Against the Japanese yen, sterling fell to a three-month low.

FILE PHOTO: UK pound coins plunge into water coloured with the European Union flag colours in this illustration picture, October 26, 2017. REUTERS/Dado Ruvic

British media reported on Wednesday the Brexit talks were close to collapse, causing sterling to fall. Mounting pressure on Prime Minister Theresa May to name a departure date is also weighing on the pound.

On Thursday, the pound fell as much as 0.3 percent to $1.2967, its lowest since April 30, before recovering to above $1.30 by 1430 GMT.

The pound was weaker against a euro buoyed by dollar selling, down half a percent to 86.430 pence.

MUFG analyst Derek Halpenny noted that sterling’s fall was more dramatic against the Japanese yen, losing half a percent on Thursday to its weakest since mid-February, at 142.56 yen per pound.

Investors unnerved by the deterioration in trade talks between the United States and China have flocked to the yen this week, which thanks to Japan’s large current account surplus lures buyers in times of uncertainty.

“The UK’s current account deficit narrowed notably post the GBP devaluation following the Brexit referendum result. However, it is deteriorating again and at close to 4 percent of GDP, GBP is vulnerable to risk-off financial market conditions emerging,” Halpenny wrote.

Sterling has traded in a $1.28-$1.32 range since Britain pushed its scheduled departure from the European Union back from March until Oct. 31. It’s still not clear when, how or even if Brexit will happen.

“Since most of her (May’s) likely replacements are even more hard-core `Leave’ supporters than she is, this raises the possibility of a hard Brexit, i.e. crashing out with no agreement at all,” said Marshall Gittler, an analyst at ACLS Global.

The government conceded on Tuesday that Britain would take part in European Parliament elections this month, a poll that could deliver more setbacks to both major parties.

Volatility in currency markets is low, and in recent weeks investors have curtailed their bets on big swings in the pound.

Reporting by Tommy Wilkes, editing by Larry King