The UK Currency Collapses as Brexit Optimism Curbed

The UK Currency Collapses as Brexit Optimism Curbed

On Wednesday, the UK currency British pound dropped from its highest level in almost five months versus the U.S. dollar. This followed after investors questioned their confidence regarding Britain’s discussions to leave the European Union.

Sterling also glided from its highest in five months, contrary to the euro as investors booked profit.

Moreover, they have prepared for a make-or-break conference between Britain and the EU on Thursday and Friday.

The focus is regarding the talks that were dragged late into Tuesday night. This is to see whether the two sides can design a contract on Brexit before the summit.

In news reports, the pair were getting closer to an agreement that upgraded sterling overnight.

Meanwhile, traders indicated that sterling could swing eagerly because it is still uncertain if Britain can prevent postponing its departure beyond October 31.

Foreign exchange strategist at Daiwa Securities in Tokyo, Yukio Ishizuki, stated, “Even if the two sides can agree on something, it is unclear if they can stick with the exit deadline.”

Negotiators Expect for A Contract

He also added, “Whether Britain’s parliament will approve whatever has been agreed is another big uncertainty. Sterling had a good run-up, but some investors are lightening their positions.”

The pound inched down 0.20% to $1.2758 after pulling back from a five-month high of $1.2800 that reached yesterday.

The British currency also declined at around 0.23% to 86.51 pence against the euro.

On the flip side, Sterling hit 86.25 pence per euro. It is the currency’s strongest since May 10.

Yesterday, the pound jumped after the news reported that negotiators expected that an agreement would be reached by midnight in Europe.

But the lack of information in Asia regarding the results of negotiations pushed the currency lower.

Trading from Britain that is formerly flowing unrestricted across the EU’s single market would be subject to customs tariffs. This will only happen without a Brexit deal.

Moreover, safety examinations would cause economic chaos.

Elsewhere, the yen held steady at 108.81 per dollar, within an distance of a two-month low.

The Japanese currency initially declined last Tuesday. This is due to optimism of Britain that may avoid a messy no-deal Brexit, but those gains were countered in Asia on Wednesday.