British Pound Drops After EU Leaders Rejected Theresa May’s Brexit Plan

Forex News

The British pound is trading lower after the EU rejected Theresa May’s Chequers proposal, casting doubt on a compromise being found despite the UK being only months from leaving the block. The pound dropped by 0.4% to $1.3217. Earlier this week, the pound climbed to $1.3298 (the highest level since July 10).

Worries about the future of Brexit talks will continue to make pressure on the British currency in a near future. Most investors, even those without a firm conviction on the final Brexit outcome or the economic outlook, say they prefer trading sterling via derivatives rather than on the spot foreign exchange market.

Recently, the pound has been strengthening on hopes of progress on a Brexit deal between London and Brussels. The currency reached a nine-week highs. Sterling has rallied by 5% from more than one-year lows hit in mid-August to nearly $1.33 and not far away from a 2018 high of above $1.43 hit in April.

The International Monetary Fund warned this week that the Britain's economy would shrink if it departed the EU without a Brexit deal but damage was inevitable no matter what terms it leaves on. The IMF expects Britain's economy to grow by 1.5% in both 2018 and 2019 if a broad Brexit agreement is struck. UBS estimates, that the British economy would lose 6.9% of output in the event of a "soft" Brexit, rising to a 10% hit should the exit be "hard", without a trade deal in place.