Pound resumes drop at start of key Brexit week

The British pound slid against the euro and dollar Monday, the start of a pivotal week for Britain and the European Union to strike a Brexit deal.

European stock markets also retreated as weak Chinese data offset a partial trade deal between China and the United States, analysts said.

Asian investors had earlier Monday saluted the trade deal, sending regional equity markets rallying, though observers were sceptical about the overall significance of the agreement.

Official data meanwhile showed Chinese imports and exports fell more than forecast in September, as US tariffs and cooling demand at home and abroad hit trade in the world’s second largest economy.

The figures weighed heavily on the oil market, with crude futures slumping two percent. They had surged Friday, fuelled by a blast on an Iranian tanker and news of the US-China deal.

“Although the US and China made some progress late last week and President Trump suspended tariffs due to come in in mid-October, the damage from the existing trade restrictions is being felt,” noted Fiona Cincotta, senior market analyst at City Index trading group.

She added: “The pound has dropped like a stone overnight after Brexit negotiations didn’t lead to any significant progress over the weekend.”

Sterling rallied late last week after British Prime Minister Boris Johnson and his Irish counterpart Leo Varadkar said after meeting that they could see a “pathway” to reaching a Brexit deal.

But European officials on Sunday said obstacles remained on how to manage trade and customs between EU-member Ireland and Northern Ireland, which is a part of the United Kingdom.

Time is running out to sign off on any deal at an October 17-18 European Union summit, the last such meeting before Britain’s scheduled departure from the European Union at the end of the month.

Sterling “has given back some of last week’s major gains as traders are less hopeful about the prospect of a Brexit deal being reached”, said David Madden, analyst at CMC Markets UK.