Sterling slides after EU's Barnier warns on Brexit deal

Updated / Friday, 9 Feb 2018 14:33

Sterling is now at its lowest since mid-January against the dollar

Sterling slid against the dollar and the euro after the European Union's Brexit negotiator, Michel Barnier, warned Britain that a post-Brexit transition deal is "not a given". 

The pound had been in positive territory before Barnier spoke.

The Bank of England's comments yesterday that interest rates would probably need to rise sooner, and by more than it had previously thought, had supported sterling. 

But it quickly reversed those gains and fell 0.8% against the dollar to trade at $1.3798 and 0.8% against the euro to trade at 88.75 pence. 

Against the dollar, sterling is now at its lowest since mid-January.

Analysts said that [Barnier's comments have raised the risk that a transition deal may not be as easy to achieve as the market had expected.

Sterling has rallied this year as investors bet Britain can secure itself a transition deal with the EU and then leave the bloc next year on favourable terms. 

The Bank of England gave a rosier view of the British economy yesterday but its hawkish comments on interest rates hinged on smooth negotiations with the EU in the coming months.

The bank's Deputy Governor Ben Broadbent said today he did not think a couple of interest rate hikes in the space of a year should come as a great shock, though he also added that the bank had not fixed any path for tightening policy. 

That came a day after the Bank of England said it was likely to tighten policy sooner and by more than policymakers had reckoned only three months ago, because Britain's slow-moving economy was getting a boost from the global recovery. 

After yesterday's Bank of England's policy meeting, financial markets now price in a nearly 70% chance of a UK rate hike in May. 

A Reuters poll of strategists found that this year's sterling surge is over, and concerns over Brexit will start weighing the currency down again.