Sterling tumbled today, erasing its post-election gains, after news that Prime Minister Boris Johnson planned to take a hard line in Brexit talks with the European Union dashed hopes of an end to Brexit uncertainty.
In his boldest move since winning a large majority in last week's election, Johnson will use the prospect of a Brexit cliff-edge at the end of 2020 to demand the EU gives him a comprehensive free trade deal in less than 11 months.
The reaction in markets, which had hoped that a resounding election win for Johnson's Conservative Party would end near-term Brexit uncertainty, was swift.
Sterling slid as much as 1.3% to $1.3155, giving up all of the gains made on Thursday and Friday after it became clear that the Conservative Party was heading for a big win.
It was last down 0.9% at $1.3210, well off the 19-month high of $1.3516 hit on Thursday.
Against the euro, the pound tumbled 1.12% to 84.52 pence, having skyrocketed to a three and a half year high of 82.78 pence last week.
After Britain leaves the EU on January 31, it enters a transition period in which it remains an EU member in all but name while both sides try to strike an agreement on their post-Brexit relationship.
Paul Hardy, Brexit director of the global law firm, DLA Piper, described the development as a "game changer" if it comes to pass.
"It will be a legal requirement. It will be put in the legislation that implements the withdrawal agreement which means that it will be a statutory requirement on government. It's realistic in a legal sense in the UK but can you do a trade deal in eleven months? The answer is not really."
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It is generally accepted that trade deals of this magnitude would take five to ten years, with a three to five year time frame possible in an optimistic scenario.
Mr Hardy said he interpreted the attempt as an indication that Boris Johnson is going in the direction of a harder Brexit.
"Under the withdrawal treaty, he could extend the deadline to 2022. If you wanted a softer Brexit with less regulatory change, you would be seeking more time to negotiate that deal.
"Cutting to eleven months means a hard Brexit because you're only able to do a basic deal on goods you want be able to negotiate services access. It's heading in a harder direction," he said.
Paul Hardy advised exporting and importing firms to keep their no-deal Brexit plans on hand as they could come in useful at the end of next year.
