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Utilico Insights - Jacqueline Broers assesses why Vietnam could be the darling of Asia for investors
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Sterling slumps as Brexit deal hopes fade

Tue, 08th Oct 2019 11:58

(Sharecast News) - Sterling tumbled on Tuesday as hopes of a Brexit deal faded, hitting a one-month low against the euro amid reports that Downing Street now deems a deal "essentially impossible".
At 1220 BST, the pound was down 0.6% against the dollar at 1.2219, nearing a one-month low, and 0.7% weaker versus the euro at 1.1123.

The Brexit plan put forward by UK Prime Minister Boris Johnson last week would see Northern Ireland leave the EU customs union with the UK in 2021. However, it would continue to apply EU legislation relating to agricultural and other products, if this was approved by the Northern Ireland Assembly. The arrangement could continue indefinitely but would require consent every four years from NI politicians.

Customs checks on goods traded between the UK and EU would be "decentralised", paperwork would be submitted electronically and there would be only a small number of physical checks.

However, according to reports, German Chancellor Angela Merkel told Johnson during a phone call earlier on Tuesday that a deal is "overwhelmingly unlikely" unless Northern Ireland remains in the EU customs territory.

Johnson was understood to have blamed the EU for a near-breakdown in talks between the two.

Neil Wilson, chief market analyst at Markets.com, referred to the situation as "stalemate".

"It's become clear a deal cannot be done," he said, adding: "We are now heading towards the Revoke versus No Deal showdown."

David Cheetham, chief market analyst at XTB, said: "Given the lukewarm reaction to the government's proposals last week this shouldn't come as too much of a surprise, and now it seems increasingly likely that we get a general election almost solely focused on Brexit before the year is out."

Artur Baluszynski, head of research at wealth manager Henderson Rowe, said: "With very little common ground, there appears to be very little benefit in continuing to negotiate.

"A no deal is the most likely outcome, both sides will now focus their attentions on a blame game and finding the culprit."

European Council president Donald Tusk lashed out at Boris Johnson on Twitter.

"What's at stake is not winning some stupid blame game," he said. "At stake is the future of Europe and the UK as well as the security and interests of our people.

"You don't want a deal, you don't want an extension, you don't want to revoke, quo vadis?"

ING strategist Petr Krpata said: "Our base case remains the extension of Article 50 and early election by late November/ early December. The extension may well last longer than three months to provide sufficient time for the new government to engage with the EU.

"Early elections will be sterling negative in our view given that (a) Prime Minister Boris Johnson will likely run on a ticket of a divisive stance against the EU to fend off the Brexit Party; and (b) the non-negligible likelihood of the Conservative Party gaining a majority and subsequent increased odds of a hard Brexit."

He expects GBP/USD to fall below the 1.20 level and EUR/GBP to re-test the 0.93 level.

"Note that the increased odds of hard Brexit should also limit the upside to EUR/USD and be negative for the European FX segment as a whole," he added.

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