Pound sterling slips after Michel Barnier tones down Brexit optimism

The EU's chief negotiator said the bloc is ready for a no-deal Brexit

The pound dropped against the dollar on Wednesday, falling back from gains made off the back of optimist Brexit outlooks offered by both EU and British negotiators on Tuesday.

Sterling fell by as much as 0.3 per cent against the dollar after the EU’s chief negotiator, Michel Barnier, said in a German radio interview that the bloc is prepared for a no-deal Brexit.

“After the sterling bounce yesterday, Barnier has used a German radio interview this morning to remind the market that the EU is also planning for a no-deal scenario,” Jeremy Stretch at Canadian Imperial Bank of Commerce, told Bloomberg.

“This suggests they are not intent on a deal at all costs and that sterling gains may prove tough to hold onto.”

The pound was boosted on Tuesday, rising 1.2 per cent against the dollar, and 1 per cent against the euro, after Mr Barnier said the EU is “prepared to offer a partnership with Britain such as has never been with any other third country".

His positive remarks came as Brexit secretary Dominic Raab told the Lords EU committee that he was “confident a deal is within our sights”

“We're bringing ambition, pragmatism, energy and if, and I expect it will be, and if it is matched, we get a deal,” he said.

Hussein Sayed, chief market strategist at FXTM, said many investors would be wondering whether Mr Barnier’s positive statement on Wednesday could be a turning point for the pound.

“Although many issues related to trade and the Irish border are far from being resolved, it currently seems that negotiations may begin moving in the right direction. However, expect volatility to surge in the coming weeks as we get closer to the Brexit deadline,” he said.

The pound remained up against the euro, trading up 0.02 per cent at €1.1128 by mid-morning.