LONDON: The pound fell further ahead of a key Brexit summit in Brussels on Thursday, while equities investors tried to come to grips with an unexpectedly dovish message from the US Federal Reserve.
Sterling, seen as a barometer for Britain’s long-running Brexit saga, remained on the backfoot over fears that the country could crash out of the EU without a deal continued to fester.
British Prime Minister Theresa May was back in Brussels on a last-gasp mission to beg EU leaders for more time to deliver a Brexit deal that was twice rejected by her own parliament.
May has declared that she is “determined” to deliver Brexit, after formally requesting a three-month delay on Wednesday.
However, investor fears persist that the 27 other EU leaders could refuse the request, potentially sending Britain crashing out of the bloc in just eight days’ time.
The pound fell as low as 1.3106 in midday trading.
“If the European leaders decide that they need more time – possibly a week – to respond to May’s request then the pound will travel south towards the US$1.30 support as uncertainty will again soar,” warned analyst Konstantinos Anthis at trading firm ADSS.
The Bank of England (BoE), as expected, held its main interest rate steady at 0.75%.
But it expressed concerns that further “uncertainties” over a “cliff-edge” no-deal Brexit “could have a significant effect on spending” by businesses.
Sentiment on equities markets was hit after the Federal Reserve forecast overnight that it would not raise US borrowing costs this year – a shift from an earlier projection of two hikes – and cut its annual growth outlook.
European markets were mostly down in afternoon trading and Wall Street opened lower.
“US stocks are under some early morning pressure as the Fed unexpectedly reflected an easier policy stance yesterday and warned that too-low inflation is one of the major challenges of our time,” said analysts at Charles Schwab brokerage.
Investors were also spooked after US President Donald Trump dashed hopes on Wednesday for a quick resolution to the China-US trade talks by warning tariffs would stay in place for some time after any agreement is reached.