LONDON, Nov 19 (Reuters) – The pound fell on Thursday against a rebounding dollar in generally cautious global markets, while pound traders waited for hints about the likelihood of the UK and European Union reaching a post-Brexit trade deal before the Dec. 31 deadline.
Britain left the EU in January and both sides are in talks to agree a future trading relationship after Britain loses access to the customs union and single market in 2021.
Investors had become more optimistic about the chance of a deal in recent days, but turned cautious on Thursday after a media report that EU leaders will demand the European Commission publish its plans for what will happen if there is no deal, analysts said.
The UK is close to signing a new trade agreement with Canada, which could come as early as Thursday, Bloomberg News reported.
“Reports that the UK and Canada are very close to reaching a post-Brexit trade deal are undoubtedly good news for both economies, but with time dangerously running out on a EU-UK trade deal, sterling is struggling to react positively to the news,” ING strategists wrote in a note to clients.
EU leaders will meet via video call later on Thursday, which analysts said could put pressure on the euro.
At 0855 GMT, the pound was down 0.4% versus the dollar, at $1.3209, looking set to break its winning streak of the past four days. Versus the euro, it was down around 0.2% at 89.52 pence per euro.
“Observers still expect a deal early next week or in the first week of December. Market participants are similarly not that concerned over the risk of No Deal Brexit at this point in time,” wrote MUFG strategist Lee Hardman.
Hardman said the options market and positioning data suggest little Brexit risk premium is priced into the pound.
“There is likely to be a much larger pound move to the downside if both sides fail to reach a deal (-5% to -10%), while we expect a modest move to the upside for the pound if a deal is finalized ( 1% to 4%),” he said.
Reporting by Elizabeth Howcroft, editing by Larry King