Currencies: British pound at 11-month low versus dollar as Brexit fears flare up

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The British pound fell to an 11-month low on Monday on renewed fears of a hard Brexit in March 2019.

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“The biggest story of the day was the continued slide in cable [the dollar-pound cross], which hit fresh 11-month highs as it dipped below towards $1.2950 support on renewed fears of a hard Brexit,” wrote Boris Schlossberg, managing director of FX Strategy BK Asset Management.

Trade minister Liam Fox in an interview with the Sunday Times ascribed a 60% chance of no deal resulting from Britain’s negotiations to exit from the European Union trade pact, an extrication informally known as Brexit. A so-called ‘hard Brexit’ would leave the U.K. without a predefined agreement on the relationship between Brussels and London after Britain officially leaves the EU in March 2019.

The British pound GBPUSD, -0.4692% fell to $1.2943 from $1.3002, hitting its lowest level since September last year. Against the euro EURGBP, +0.3710% sterling fell to its lowest level in just over two weeks. One euro last bought £0.8928, up 0.4%, according to FactSet.

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Cable—as the sterling-dollar pair is also called—“is trading on waves of uncertainty and will now become even more susceptible to any news headlines as the deadline to Brexit draws nearer,” Schlossberg said.

“For as long as the pound remains below $1.30 the market can’t rule out a potential decline towards $1.25 over the coming weeks,” said Lukman Otunuga, research analyst at FXTM, in emailed comments.

“While a Brexit deal would help restore confidence in the pound to what extent would be determined by whether an agreement was seen as a successful one,” Otunuga added. “The cap on how high sterling could rally could be in between $1.30-1.25, but this would also depend on how severely the pound weakens following today’s low.”

Key issues that still remain center on the border between Northern Ireland, which is part of the U.K., and the Republic of Ireland, which is an EU member state, as well as the free movement of people across the EU.

Otherwise it was “a very quiet start to the week’s trade with Japan markets closed and no major data on the docket anywhere in the G11 universe,” Schlossberg said. The biggest data point of the week will be U.S. consumer-price inflation due on Friday.

The U.S. dollar strengthened across the board on Monday, though volumes were thin, Schlossberg added. The ICE U.S. Dollar Index DXY, +0.15%  was up 0.3% at 95.370. Last week, the gauge gained 0.5%.

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The broader WSJ Dollar Index BUXX, +0.29% which measures the greenback against 16 rival currencies, was up 0.3% at 88.98, as emerging-market assets weakened.

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