LONDON: The pound fell against the dollar on Wednesday, as Britain and the European Union failed to agree on solutions to post-Brexit trade problems in Northern Ireland, and exchanged threats in a standoff that could claim the G7 international summit.

Currency markets have been generally sluggish so far this week ahead of US consumer price index (CPI) data and a European Central Bank meeting, both on Thursday, which are expected to be market-moving.

The pound had been ignoring a dispute between Britain and the EU over trading arrangements in the British province of Northern Ireland, which remained within the European Union’s single market after Brexit due to its open land border with Ireland.

But the currency fell after European Commission Vice President Maros Sefcovic said that the EU is considering advancing its legal challenge to Britain over UK action in Northern Ireland, which could result in a court case by autumn or the eventual imposition of tariffs and quotas.

At 1445 GMT, sterling was down 0.3% versus the dollar at $1.41165, having reached as high as $1.419 earlier in the session, before the EU’s comments.

Versus the euro, it was down 0.4% on the day at 86.34 pence per euro - its weakest in one week. Sterling-dollar implied volatility gauges with one-month maturities were at their lowest since February 2020, suggesting that market participants are not bracing for significant price-action.