Sterling falls as concerns linger over negative rates, Brexit transition

[LONDON] Sterling retreated below US$1.23 on Wednesday as the dollar regained some strength and investors' focus shifted back to the possibility of negative interest rates in Britain.

Bank of England Chief Economist Andy Haldane on Tuesday played down the prospect of imminently taking rates into negative territory, saying that "reviewing and doing are different things."

But analysts believe that once the talk of negative rates has taken hold in the markets, it would be hard to shift the focus away from it.

"The door has been opened to the prospect of negative rates given the BoE clearly before has explicitly ruled out negative rates," said Derek Halpenny, head of research at MUFG.

"We do not see Haldane's comments yesterday as a signal of a reversal of the negative rate speculation," he said.

Mr Halpenny said he has gone short sterling/Japanese yen on a short-term basis "to capture the ongoing underperformance of the pound due to negative rate speculation".

Britain's negotiator with the European Union David Frost reiterating on Wednesday that the UK will not extend the Brexit transition period beyond December also pushed the currency down.

Mr Frost also repeated his position that at the moment the two sides are far apart and that the EU must evolve its position to reach an agreement with Britain.

With talks to negotiate a post-Brexit trade agreement making no headway before a June deadline, Britain risks falling out of the European Union without a deal in place by end-2020.

REUTERS