The pound has taken a hit this morning after reports that UK demands to vet new EU laws during the transition period could jeopardise the next round of talks.
The EU has made it clear that Britain will be a “rule-taker”, not a rule-maker during the transition period that will follow Brexit in March 2019.
The precise details of the transition period have yet to be hammered out – the EU is finalising its negotiation position today.
‘Wasting everyone’s time’
In a speech on Friday, Brexit secretary David Davis called for a “means to remedy issues” if laws were “deemed to run contrary to our interests”.
However, a senior European government official told the Financial Times that Britain was “wasting everyone’s time” looking for alternative mechanisms, especially given premier Theresa May’s desire to reach a transition agreement in March.
“Sterling has fallen by 1.5% from a high of $1.4344 earlier in the year to a weekly low of $1.4111, showing how fragile the current negotiations are,” said Miles Eakers, chief market analyst at Centtrip.
Renewed interest in dollar
He said the drop against the dollar also reflected renewed interest in the greenback, which fell following the impasse over the US budget, leading to a three-day government shutdown.
After falling to three-year lows, the Dollar Index, which tracks the currency’s value against its major peers, is up almost 1%.
Some analysts are predicting a dollar bounce that traders can take advantage of, at least in the short term.
“Could the embattled dollar engage a technical rally? [that is] the question traders will be asking themselves this week” Hantec Markets analyst Richard Perry said in a note Monday.
He added: “There is a feeling the dollar decline is overdone, at least in the near term."
All eyes will be watching the publication today of the US personal consumption expenditure price index data – a measure of inflation that tracks the changes in prices of goods and services purchased.