(Bloomberg) -- The pound erased an earlier advance to slip as Chancellor Angela Merkel’s government is said to see the U.K.’s Brexit customs plan as unworkable.
Sterling fell to the day’s low of $1.3205 on the news, which may undermine Prime Minister Theresa May’s proposal on how customs will operate ahead of a meeting with her own cabinet to agree a strategy. The pound had earlier climbed as Bank of England Governor Mark Carney said the U.K. economy is supporting the case for higher rates.
“Certainly the pound is lower on the back of this news,” said Neil Jones, head of hedge fund sales at Mizuho Bank Ltd. Sterling “was bid on Carney and offered on EU rejection.”
The pound was down 0.1 percent at $1.3220, halting a two-day climb. Sterling weakened 0.4 percent against the euro to 88.46 pence. Gilts were little changed with the 10-year yield at 1.27 percent.
Earlier Carney had said incoming data had given him “greater confidence” that a sluggish first quarter was due to poor weather. Market pricing for an August interest-rate hike from the central bank moved to 80 percent, from around 75 percent before his speech. But Brexit worries have kept sterling under pressure. Brexit Secretary David Davis had already reportedly rejected attempts at the compromise proposal on customs.
“It sounds like the bank are ready to hike in August,” said Viraj Patel, an analyst at ING Groep NV. “But it’s worth noting that pound markets aren’t fully buying it. There are two major elephants in the room -- trade wars and Brexit.”
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