The pound headed for its biggest decline in three weeks against the dollar after Ireland said it may not agree to alter a proposed border deal with the UK that reportedly stalled Brexit talks on Monday. Government bonds gained.
Sterling weakened versus all of its 16 major peers after Britain and the European Union said that they hadn’t made sufficient progress to move the negotiations to the next stage. Losses deepened on Tuesday after Irish Foreign Minister Simon Coveney said the “core” meaning of words agreed with the UK won’t change, according to comments broadcast by RTE television channel.
“Sterling continues to nurse its bruises from the news from Brexit talks,” Credit Agricole CIB strategists including Valentin Marinov wrote in a research note. “The price action in the currency markets may suggest that a constructive outcome from the negotiations is still possible.”
After Monday’s meeting failed to reach an agreement, the next big deadline for pound traders is the December 14-15 EU summit. The demand for option trades that expire after the summit and benefit from wider price swings in the pound against the dollar rose to its highest since August, with the EU set to give its verdict on whether Britain can progress to discussing the future relationship at the summit. The pound fell 0.4 percent to $1.3427 as of 10:37 a.m. in London, after touching $1.3371 earlier. It weakened 0.4 percent to 88.35 pence per euro. The yield on 10-year gilts dropped three basis points to 1.26 percent, after climbing five basis points.