Pound Weakens As Brexit Fears Mount

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The pound fell sharply against its major counterparts in the European session on Tuesday, amid fears that the UK would leave the European Union without a trade deal.

The UK and EU negotiators began the latest round of Brexit negotiations in London today. The talks have stalled because of deadlock over fishing rights and fair competition rules.

News that the UK is drawing up legislation to override key elements of the withdrawal agreement further irked the EU. The bill is due for publication on Wednesday,

The EU warned of a no-trade deal if the U.K. tried to alter the divorce deal.

Prime Minister Boris Johnson announced October 15 as the deadline to reach the deal with the EU. His rhetoric raised no-deal Brexit fears, weighing on the currency.

The pound dropped to 1.3053 against the greenback, its lowest level since August 14. Next immediate support for the pound is seen around the 1.28 level.

The GBP/CHF pair reached 1.1995, marking nearly a 2-week low. The pound is seen finding support around the 1.17 region.

The pound dipped to a 2-week low of 138.75 against the yen from Monday’s closing value of 139.80. The next likely support for the pound is seen around the 135.00 level.

Second estimate from the Cabinet Office showed that Japan’s economy contracted more than initially estimated in the second quarter, largely due to a sharp downward revision in capital investment.

Due to the restrictions imposed to contain the coronavirus spread, gross domestic product shrank by a record 7.9 percent sequentially instead of the 7.8 percent fall estimated initially.

The pound depreciated to a new 2-week low of 0.9040 against the euro, compared to yesterday’s closing quote of 0.8967. On the downside, 0.92 is possibly seen as its next support level.

Data from Eurostat showed that the euro area economy contracted less than initially estimated in the second quarter but the pace of decline was the most since the records began in 1995 due to the coronavirus containment measures adopted by the member countries.

Gross domestic product fell by a record 11.8 percent sequentially but this was revised down from -12.1 percent estimated initially. GDP had contracted 3.7 percent in the first quarter.

Looking ahead, U.S. consumer credit for July will be featured in the New York session.

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