Sterling sank against the dollar on Thursday as Barnier said there had been ‘no decisive progress’ in Brexit negotiations.
The lack of progress will unnerve markets who are looking for any semblance of cooperation that could avoid a so called ‘hard-Brexit’.
“The risk of no transitionary agreement seems to have increased today given the strong word’s from Barnier, the EU chief Brexit negotiator. His not unexpected comments has led to a modest weakening in Sterling, however it also increases the chance of the UK exiting the EU in a disorderly fashion,” said Shilen Shah, Bond Strategist at Investec Wealth & Investment.
“The key hazard for markets is that today’s disagreement is an indicator of where future negotiations are heading, with the danger that the risk-premium on UK assets will widen if the talks implode with no agreement.”
GBP/USD has been resilient throughout August as the UK government holidays and the dollar weakens in the face of unconventional behaviour in Washington DC.