The British pound held above a 10-day low on Monday as investors cut their holdings with British and European negotiators scrambling to salvage post-Brexit trade talks.
British Prime Minister Boris Johnson said on Friday there was no point in continuing talks and it was time to prepare for a ‘no-deal’ exit when transitional arrangements end on Dec. 31 while the European Union said Britain needed to give ground.
EU chief negotiator Michel Barnier had been due in London for talks with his British counterpart David Frost this week. Instead, they will now speak by telephone on Monday to discuss the structure of future talks.
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With only 11 weeks to go before the end of the transition period, Berenberg economists estimate the probability of a hard Brexit at as much as 50% with both sides taking steps to soften the blow on their respective economies.
“We thus have to watch carefully the risk that neither side blinks and, in the end, the two sides finally part ways without a deal,” they said in a note.
Against a broadly steady U.S. dollar, the pound edged 0.2% higher at $1.2936 hovering just above a Oct. 7 low of $1.2860 hit on Friday. Against the euro, the pound weakened 0.3% to 90.49 pence.
Latest positioning data for the week ending Oct. 13 showed investors have been steadily reducing their holdings in the British pound.
While the overall picture showed a small reduction in net short pound positions, the overall picture was worrying with hedge funds cutting both their bought and sold bets.
In derivative markets, one-month implied volatility gauges for the pound firmed above 11%, the highest levels in more than a month, pointing to rising uncertainty.
Source: UK Reuters
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