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Pound slumps as fears of hard Brexit resurface

Pound slumps as fears of hard Brexit resurface

Britain's Prime Minister and Conservative party leader Boris Johnson poses after hammering a "Get Brexit Done" sign into the garden of a supporter - he won a landslide victory in December 2019 elections. (Photo: AFP/Ben STANSALL)

LONDON: The British pound slumped against the US dollar and the euro in early European trading on Tuesday (Dec 17), losing its election euphoria gains, following media reports that UK Prime Minister Boris Johnson was taking a hard line on Britain's transition period for leaving the European Union.

Johnson will use the majority he won in last week's election to forbid any extension of the Brexit transition beyond 2020, leaving him less than 11 months to strike a comprehensive trade deal. 

READ: UK PM Johnson plans to block extension of Brexit transition beyond 2020

On Tuesday, the British currency lost the gains it made after Johnson scored a landslide win in the election, falling 1.2 per cent to US$1.3155 and to 84.59 pence against the euro.

In the immediate aftermath of the exit polls, the pound had rocketed as much as 2.5 per cent higher to US$1.3516 - its highest since May 2018. Against the euro, sterling had risen as high as 82.80 pence, up more than 2 per cent on the day, leaving the pound at levels last seen in July 2016.

On Tuesday, the pound also fell against the Singapore dollar, standing at S$1.7858 at 6pm. It had soared as high as S$1.8296 after the election results on Friday.

READ: UK election: Pound surges against Singapore dollar as Johnson scores landslide win

After the United Kingdom leaves the EU on Jan 31, it enters a transition period in which it remains an EU member in all but name while both sides try to strike an agreement on their post-Brexit relationship.

The latest reports came as a surprise. Some investors had thought that Johnson would use his majority in Parliament to adopt a more moderate approach towards Brexit negotiations.

Analysts say a comprehensive trade deal with the European Union could take years, not months, to negotiate and the kind of hard deadline Johnson is aiming for would make it difficult for negotiators and provide a fresh source of uncertainty.

That raises the possibility of either a "bare-bones Brexit" more or less on WTO terms or yet another cliff-hanger next December, said Marshall Gittler, chief strategist at FX analysis firm ACLS Global.

A business survey on Monday showed British businesses endured their worst downturn since mid-2016 before the election. Unemployment data is due shortly. 

Source: Reuters/cna/nc

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