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Sterling struggles as EU trade talk fears weigh on sentiment

Written by Business World, on 6th Feb 2020. Posted in EU

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Sterling limped lower on Thursday as concerns about negotiations between Britain and the European Union for a post-Brexit trade deal rattled investors, while a broadly stronger dollar also weighed.

The pound took a big drop on Wednesday, which some analysts said was exacerbated by a media report that indicated that the EU would look to re-write a major set of European financial regulations known as Mifid II.

The British currency held its ground against the euro on Wednesday and into Thursday, however, suggesting the Mifid II jitters were not shared by all.

After dropping to as low as $1.2957 on Wednesday, sterling recovered marginally and was down 0.1% at $1.2983 in early trade on Thursday.

Stephen Innes, chief market strategist at AxiCorp, cited the Bloomberg report on a post-Brexit Mifid rewrite as the cause of the pound's move downwards, adding that "the prospect of regulatory gridlock continues to weigh."

The dollar on Wednesday surged across the board after better-than-expected employment data underlined the relative strength of the U.S. economy.

Investors are nervous that British Prime Minister Boris Johnson is taking a hard line in the trade talks with the EU, which need to be concluded before the end of the year to avoid a potentially disruptive break in trading relations.

"While GBP benefited from the risk rally in the middle of week, its gains vs EUR and USD have been limited as the overhang of upcoming UK-EU negotiations limits GBP upside potential, ING analysts said in a note.

"We continue to expect the periods of GBP rebounds to be shallow and short-lived."

Sterling was unchanged against the euro at 84.68 pence. .

Britain has committed to applying EU rules during the transition period that ends in December. Britain's finance ministry has said that at the end of the transition period, Britain will be able to review and implement its own regulations. (Reuters)

Source: www.businessworld.ie

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