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Market Update

Sterling hovered at near two-month lows against the dollar and the euro, as talk of negative interest rates from the Bank of England and a stalemate in Brexit negotiations kept the currency pinned within tight ranges.

The pound has already fallen sharply this month, by 3.75% against the dollar.

Britain and the EU’s chief negotiators on Friday gave downbeat assessments of the latest round of Brexit negotiations, while the Bank of England’s chief economist refused to rule out the possibility of taking interest rates below zero to prop up the country’s economy.

The stalemate between Britain and the EU has raised the prospect that there will be no deal struck on Britain’s formal departure from the bloc after the end of the current transition period, a scenario that would damage global trade as the world copes with the economic fallout from the coronavirus pandemic.

That, added to a resurfacing of talk of cutting interest rates below zero as Britain faces potentially its sharpest economic downturn in 300 years, weighed on the pound.

Senior British government minister Michael Gove said on Sunday there was a post-Brexit trade deal to be done with the European Union providing the bloc agreed to compromise, days after both sides said talks were making little progress.

Britain’s economy is unlikely to have a quick bounce back as it recovers from its coronavirus shutdown which could have wiped more than 30% off output last month, the head of the Office for Budget Responsibility (OBR) said on Sunday.

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