The British pound has fallen heavily over the last 3 trading sessions against its US counterpart as investors pile into the greenback in anticipation of higher interest rates and now another spanner has been thrown into the works with the release of the EU’s draft Brexit treaty.
The treaty has not taken into account some of the biggest demands from the UK government which includes a longer transition period after Britain leaves the EU in 2018 as well as the border between Ireland and Northern Ireland.
EU spoksman Michel Barnier noted that Northern Ireland should remain a member of the customs union and follow EU rules or risk facing a hard border between the 2 countries.
Prime minister Theresa May quickly rebuffed the proposed treaty which is likely to cause a lengthy standoff and will be devastating for the British pound.
"The draft legal text the commission has published would, if implemented, undermine the UK common market, and threaten the constitutional integrity of the UK by creating a customs and regulatory border down the Irish sea, and no UK Prime Minister could ever agree to it," May told parliament.
Some Analysts are comparing the current situation to the immediate aftermath of Brexit when the pound fell as low as $1,20 and if the currency fails to hold around today’s level we may be in for further losses.
“This paints a bearish outlook for the pound that was previously on a positive path and combined with the risk-off bias currently dominating the market sentiment suggests more losses for the U.K. currency if the $1.3750 support gives way,” said Konstantinos Anthis, head of research at ADS Securities, in a note.
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