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Sterling Weakness Continues

The likelihood Britain crashes out of the European Union without a trade deal has increased, an outcome that would hurt an already weak pound, according to economists and foreign exchange strategists.

Bank of England Governor Mark Carney said on Friday Britain faces an “uncomfortably high” risk of leaving the EU with no deal, while on Sunday trade minister Liam Fox put the odds of such an outcome at 60-40.

Economists were far less pessimistic, giving a median 25 percent chance no agreement was reached. That was, however, higher than the 20 percent in a July poll.

A dozen of 27 common contributors between that poll and this upped their forecast. Thirteen left them unchanged and two cut them.

Sterling fell on Wednesday, slumping below $1.29 for the first time in almost a year, in a sell-off fuelled by investor concern Britain will crash out of the EU without a trade deal. The poll was largely taken ahead of this latest fall.

However, 80 percent of economists said the most likely outcome will be the two sides agreeing on an EU-UK free trade deal, as has been predicted since Reuters first began polling on this in late 2016.

If the common view is wrong and the two sides part ways without a deal then sterling would fall to $1.20, according to the median forecast given by foreign exchange strategists polled in the past week.

Since the Brexit vote sterling is down nearly 14 percent versus the dollar. While it is unlikely to fully recoup those losses anytime soon, expectations for a deal have driven expectations for a strengthening pound.

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