The pound fell to its lowest since early November on Thursday as investors fretted that a European Union summit would underline how there has been no meaningful progress for months in negotiations on a Brexit deal. This lack of progress, combined with a series of corporate warnings this week about the effect on Britain's economy if a deal is not agreed soon, has weighed heavily on sterling and lowered expectations of a Bank of England interest rate rise.
Irish Prime Minister Leo Varadkar said on Thursday his country would have to start making preparations for the unlikely scenario of Britain crashing out of the European Union without a deal. That drove the pound down to $1.3050, an eight-month low, before comments about interest rates seen as bullish from the Bank of England's chief economist lifted sterling somewhat.
EU leaders gathered in Brussels on Thursday for a summit from which the outline of a post-Brexit deal was once expected. But Brexit has been pushed down the agenda. Investors are expecting only an update on progress on agreeing arrangements for the border between the Irish Republic and the British province of Northern Ireland, and towards agreeing the future trading relationship between the EU and Britain.
At 1550 GMT the British currency was down 0.2 percent at $1.3089 and also down 0.4 percent against the euro at 88.44 pence. An incoming member of the BoE's rate-setting team, Jonathan Haskel, is set to replace a relatively hawkish policymaker and this week he signalled a more dovish tone than some expected. Markets are pricing in an 84 percent chance of a single 25 basis point increase by the end of 2018.