Pound dips to 6-week low as UK clashes with EU over Brexit bill

LONDON: The pound briefly fell below $1.29 on Wednesday to its lowest level in six weeks against the dollar as new legislation on Britain's post-Brexit plans stoked fears that trade talks with the European Union would derail.

The text of a bill on life outside the bloc acknowledged 'inconsistency' with international law and fuelled concerns that Britain could leave the European Union's single market in four months with no trade agreement in place.

The pound has fallen more than 4% over the past five trading sessions, its biggest losing streak since a bout of COVID-19-fuelled volatility in March/April.

Already slipping against the dollar on Wednesday, sterling took a further dip below $1.29 mark after the bill was published at about 1200 GMT, falling to $1.2885, its lowest level since July 28.

But by 1320 GMT, it had recovered almost all its losses to trade near $1.2978.

"There was an expectation that there would be a little bit of crossover in terms of the Northern Ireland arrangement in respect to the EU and the UK and that has turned out to be the case," said Michael Hewson, chief markets analyst at CMC Markets.

Against the euro, sterling was trading at 1315 GMT at 91.12 pence per euro, down 0.4% on the day, having earlier weakened as far as 91.30.

One-month sterling implied volatility hit its highest level in nearly five months at 10.4%, rising well above 12-month implied volatility and forcing the options curve to invert for the first time in five months.

"Quite how the UK is going to agree multiple new trade agreements with partners around the world whilst openly flouting international treaties is a question that GBP (the pound) is answering in resounding fashion in its decline," HSBC said in a note to clients. It saw the pound falling to $1.20.

ING said $1.2870 looked like a possible support level for sterling on Wednesday.

Jordan Rochester, currency strategist at Nomura, said the bill's 'notwithstanding' clause - allowing the UK to unilaterally overwrite parts of the agreement - might persuade the markets that 'no deal' was the most likely scenario.

Britain and the EU say they have until next month to agree a free trade deal, which would ease the worries of companies who fear disruption at the borders and of supply chains.