Pound drops after leaders dinner fails to break Brexit impasse

Sterling fell as much as 0.6 per cent to US$1.3320 in early Asia trading. PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - The pound fell after the UK and the European Union agreed to give Brexit trade negotiations until Sunday (Dec 13), with large gaps remaining between the two sides.

The new deadline comes after British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen held talks over dinner without a breakthrough.

Sterling fell as much as 0.6 per cent to US$1.3320 in early Asia trading after ending the New York session up 0.3 per cent as the dinner continued. It pared some losses to trade at US$1.3353 as at 7:19am in Singapore.

"We're not pricing no deal yet, but the odds are increasingly moving in that direction," said Jeremy Stretch, head of G-10 currency research at Canadian Imperial Bank of Commerce in London. Negotiators are "still talking, so that suggests that immediate downside may be contained ahead of early week lows at 1.3225."

With only weeks remaining to reach an accord, many traders had pinned their hopes on the face-to-face meeting. Negotiations reached an impasse in recent days despite eight months of technical talks.

If a trade agreement isn't struck by the end of year, the UK could face tariffs on exports to the bloc among many other damaging disruptions. The economy would suffer a near-term shock of around 1.5 per cent of output, according to Bloomberg Economics.

Sterling price action in early Asia trading showed some traders "have been expecting more" from the negotiations, said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney.

"Reading through the details we still think the outlines of a deal can be reached by the end of the week or early next week," said Mr Catril. "Cable is likely to remain volatile near term, but we like the idea of buying into dip below 1.33 with levels above 1.36/37 likely next week."

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