Tuesday 08 October 2019 1:52 pm

Sterling tumbles as Brexit deal hopes ‘snuffed out’

Sterling hits one-month low as Brexit deal hopes ‘snuffed out’ — BATH, ENGLAND - OCTOBER 13: In this photo illustration, £1 coins are seen with the new £10 note on October 13, 2017 in Bath, England. Currency experts have warned that as the uncertainty surrounding Brexit continues, the value of the British pound, which has remained depressed against the US dollar and the euro since the UK voted to leave in the EU referendum, is likely to fluctuate. (Photo Illustration by Matt Cardy/Getty Images)

Sterling has fallen to a one-month low against the euro after German Chancellor Angela Merkel said a Brexit deal without Northern Ireland staying in the customs union is “overwhelmingly unlikely”.

The pound had shed 0.76 per cent of its value by 1.50pm to stand at €1.1114, a low-point not seen since the start of September. Against the dollar GBP dropped 0.61 per cent to buy $1.2213.

Prime Minister Boris Johnson had presented the European Union with a new Brexit plan that would have seen Northern Ireland leave the customs union – the EU’s free-trade area – with the rest of the UK but stay aligned in certain areas.

Yet the EU, as made clear today by Merkel, objects to the deal as it risks either hard border infrastructure or a lack of proper oversight, among other criticisms.

Merkel’s position was decried by Downing Street, which said it means a deal is “essentially impossible”. A Number 10 source said: “She made clear a deal is overwhelmingly unlikely and she thinks the EU has a veto on us leaving the customs union.”

Traders also reacted badly to the news and sold sterling. The pound is still a way off the five-year low against the euro seen in August, when it also hit a 35-year low against the dollar.

Neil Wilson, chief market analyst at trading platform Markets.com, said: “Sterling is under the cosh again as hopes of a deal between the UK and EU fade.”

“The last flicker of hope was snuffed out this morning after a call between the PM and chancellor Merkel of Germany left the process at an impasse.”

“We are now heading towards the revoke versus no deal showdown,” he said. “The pound does not like the tone of all this.”

Andy Scott, associate director at financial risk adviser JCRA, added: “The fact that sterling hasn’t fallen back to its recent lows also points to expectations that the Benn Act ensures an extension is highly likely.

“Could the market be mispricing the risk that a no-deal Brexit could still happen, either by a technical legal measure the government found to avoid requesting an extension, or that the EU refuses one? The Halloween timing is certainly apt, as a no-deal outcome could be truly frightening.”

(Image credit: Getty)