Sterling falls hard as Johnson strikes bullish tone on Brexit
Sterling fell against all major currencies after PM Johnson said the UK did not need to stick to EU rules
The pound fell after Conservative prime minister Boris Johnson set out a hardline stance ahead of the start of formal trade negotiations with the European Union next month.
Johnson used a speech to ambassadors and business people to say that the UK has no need to align to EU rules and regulations over competition, welfare spending and environmental standards.
His bullish tone is likely to set the UK on a collision course with the EU, which wants Britain to agree to retain a “level playing field” in a number of areas - which means adhering to many of its rules.
Sterling fell against every major currency. Against the euro, the pound fell 0.9 per cent to 84.70 pence, while against the US dollar, sterling dropped 1.1 per cent to $1.3062. The pound was on course for its largest one-day percentage drop since mid-December against both the euro and the dollar.
“There is no need for a free trade agreement to involve accepting EU rules on competition policy, subsidies, social protection, the environment, or anything similar, any more than the EU should be obliged to accept UK rules,” Johnson said.
“This will probably characterise negotiations over the next 9-10 months and stands to drag cable back to the lower end of its $1.29-1.35 range,” analysts at ING wrote.
With risk aversion running high anyway, the pound dropped by around 0.8 per cent against both the Swiss franc and the Japanese yen, both of which are often perceived as safe-haven currencies.
A report earlier in the day that showed factory activity in Britain reached its highest since last April did little to support the currency. The IHS Markit Purchasing Managers’ Index, based on a survey of 600 manufacturers, rose to 50.0 in January from 47.5 in December. This was the highest level for the index since April 2019.
“Sterling is shedding gains that it enjoyed after the Bank of England left rates unchanged and as it seemed relatively optimistic,” said ForexCrunch’s Yohay Elam.
“One of the positive signs that the BoE noted came from the improvement in Markit´s forward-looking Purchasing Managers' Indexes. The final read of Manufacturing PMI for January has been published on Monday, showing an even better outcome than originally published ... Nevertheless, the score reflects a balance between expansion and contraction.”
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