The British pound fell sharply as investors began to question whether a Brexit deal would be reached, with traders canceling bets made last week amid new trading uncertainty.
The British pound fell 1.3% against the dollar to $ 1.326, after hitting a two-year high of $ 1.354 on Friday. The pound also slipped against the euro, losing 1.2% to € 1.094.
Read more: Brexit: UK and EU to resume negotiations after announced breakthrough in fisheries
Brexit talks resumed today after revelations over the weekend that the two sides remain very distant on the issue of fishing rights. Both sides expressed skepticism over the weekend about reaching a deal.
If the talks don’t end with any deal, the UK will collapse on World Trade Organization terms. This would lead to higher tariffs and disruption to the economy.
Investors have pushed up the price of the pound since July. They applauded the fact that the two sides seemed to come closer. Amid positive reports last week, the pound once again climbed.
But these bets are voided today as traders seek to cover all possibilities.
“Brexit concerns are back today, with hopes of a breakthrough in the talks quickly wiping out to the detriment of the pound and the FTSE 250,” said Joshua Mahony, senior market analyst at IG.
“Fortunately for the FTSE 100 bulls, the strong devaluation of the pound helped push the index to outperform given the weakness seen across continental Europe.
Pound drop raises FTSE 100 amid Brexit fears
The FTSE 100 was 0.5% higher. A lower pound traditionally increases the index. This makes the income of its constituents abroad worth more in relative terms.
However, the FTSE 250 slipped 0.7% amid concerns over the impact of no deal on the UK economy.
Many traders said they are still optimistic about reaching a deal. Ranko Berich, Head of Market Analysis at Monex Europe, said: “We remain of the view that a close trade agreement covering goods is the most likely outcome.”
Read more: FTSE 100 rises as pound drops amid Brexit angst
Still, he added, “This morning’s news does not increase our confidence – or the market’s – in this scenario.” Berich said if negotiations collapse, the pound could fall three to eight percent from current levels.
The UK 10-year bond yield fell 0.054 percentage points to 0.299%. The move showed bond prices rising as investors sought safety amid the uncertainty of Brexit.