Investors are worried by heightened tensions between London and Brussels over Brexit. ©AFP/File Daniel LEAL-OLIVAS

London (AFP) – Sterling sank close to a one-month low against the dollar low on Tuesday as investors fretted over heightened Brexit tensions before crunch trade talks between London and Brussels.

In midday deals, the pound dropped more than 1.0 percent versus the greenback to $1.3022 — a level last seen on August 12. It also lost ground against the euro.

US oil prices meanwhile plunged five percent as the coronavirus pandemic weighed on the outlook for demand.

And European equities slid before the reopening of Wall Street after a long Labor Day holiday weekend.

The British pound had already dived Monday after Prime Minister Boris Johnson revived the prospect of a no-deal Brexit, saying if an EU trade deal is not struck by October 15 then there will not be one.

Sterling lurched lower again Tuesday after it was officially confirmed that the head of the UK government’s legal department has resigned over Johnson’s last-minute changes to Britain’s Withdrawal Agreement.

The eighth round of negotiations resume this week, with both sides talking increasingly tough and sparking accusations of intransigence and political brinkmanship.

– ‘Brexit wheels fall off?’ –

“It looks like the wheels of the Brexit bus are finally falling off, as news of the head of UK government legal (department) resigns,” said analyst Sebastien Clements at international payments company OFX.

“The UK ministers now face an uphill battle with plenty of roadblocks continuing to slow things down.”

Later this afternoon, UK and EU negotiators resume Brexit talks, after warnings that Johnson’s changes to domestic legislation had risked derailing the process, while also threatening peace in Northern Ireland and even a showcase UK-US trade deal.

The latest resignation appears to have raised the stakes.

“Whilst we should caution that this indicates disharmony, it is also possibly an overreaction by the market to a negative headline, and does not necessarily make a deal with the EU less likely than it was before,” said Markets.com analyst Neil Wilson. 

“Nonetheless, it highlights the brinkmanship pursued by Johnson’s government in the talks — even suggesting that Britain could unilaterally rewrite the Withdrawal Agreement has raised the EU’s hackles and clearly raises the stakes as the two sides commence the eighth round of official talks today.”

– Asia ticks higher –

Elsewhere, Asian stock markets ticked higher after last week’s steep drops as investors brushed off US President Donald Trump’s latest anti-China salvo.

Despite continued uncertainty about the timetable for economic recovery — and with no Covid-19 vaccine yet available — investors remain convinced central banks around the world are willing to play backstop and keep monetary policy supportive for years to come.

There was little initial reaction to Trump saying he wanted to wind back Washington’s economic relationship with China.

– Key figures around 1130 GMT –

Pound/dollar: DOWN at $1.3032 from $1.3166 at 2100 GMT

Euro/pound: UP at 90.43 pence from 89.76 pence

Euro/dollar: DOWN at $1.1801 from $1.1817

Dollar/yen: DOWN at 106.26 yen from 106.27 yen 

West Texas Intermediate: DOWN 5.4 percent at $37.63 per barrel

Brent North Sea crude: DOWN 3.4 percent at $40.59 per barrel

London – FTSE 100: DOWN 0.3 percent at 5,920.88 points 

Frankfurt – DAX 30: DOWN 1.0 percent at 12,971.71

Paris – CAC 40: DOWN 1.4 percent at 4,982.89

EURO STOXX 50: DOWN 1.2 percent at 3,272.91

Tokyo – Nikkei 225: UP 0.8 percent at 23,274.13 (close)

Hong Kong – Hang Seng: UP 0.1 percent at 24,624.34 (close)

Shanghai – Composite: UP 0.7 percent at 3,316.42 (close)

New York – Closed Monday 

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Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.