Sterling Falls against the US Dollar as Brexit Deal Fails

The US dollar steadied against the British pound on Monday as investors stick to safe haven currencies, following an unsuccessful Brexit deal between the UK and the European Union (EU) over the weekend.

The sterling traded 0.05 percent lower at 1.3148 against the greenback after marking an October high of 1.3258 on Friday, while the euro gained 0.2 percent to 1.1587.

The dollar index, a measure of its strength against six major peers, fell 0.2 percent to $94.73.

Kathy Lien, managing director of foreign exchange strategy stated that the main focus for the pound is Brexit and data is only a distraction.

Brexit Concerns, Johnson's Remarks Weigh on the Pound

The UK and the EU failed to reach a Brexit agreement on Sunday after disputes over Northern Ireland continued to hinder talks.

The UK's Department for Exiting the European Union said in the last few days UK and EU negotiators have made real progress in several key areas, but there remain a number of unresolved issues relating to a backstop.

The backstop refers to a deal to protect Britain’s land border with Ireland.

Negotiators over the weekend yielded after marathon talks and pressed pause for the coming days.

The clock is ticking and an agreement is drawing close, but having been burned by false hopes investors are ignoring the conflicting headlines and waiting for official confirmation, Lien said.

EU’s top political representative warned on Wednesday that time is running out and that there are still significant issues to deal with before a divorce deal can be sealed with the UK.

If an agreement cannot be reach before the end of March next year, Britain risks crashing out of the EU in a disorganized manner.

Also weighing on the pound was former foreign minister Boris Johnson’s remarks in a newspaper column on Sunday. Johnson stated that the Britain must stand up to bullies in the EU and press for what a super Canada free trade agreement.

Japanese Yen Strengthens

Elsewhere, the yen was up against the dollar by 0.3 percent to 111.78 on Monday. Against the greenback, the yen has climbed in six out of the last seven sessions, as global risk-off sentiment maintained active safe-haven bids on the Japanese currency.

US Treasury Secretary Steven Mnuchin on Saturday said Washington has called for a currency clause that would prevent currency manipulation in any future trade talks, including with Japan, based on the currency chapter in the new deal to revise the North American Free Trade Agreement (NAFTA).

Mnuchin’s comments raised questions whether the plan would give the US the right to regard as currency manipulation any future foreign exchange market interventions by Japan to curb sharp yen gains.

Analysts expect the yen to strengthen in the short term as possible negative sentiment towards shares would boost safe-haven demand for the currency.

Our bias is that equities will remain under pressure this week, and thus see scope for USD/JPY to ease somewhat further towards the 110 level, according to a research note from a Japanese retail banking firm.

The Australian dollar, meanwhile, advanced 0.3 percent to 0.7139 against its US counterpart. The Aussie hit a two-year low of 0.7039 on October 5.

The greenback dropped 0.1 percent to 1.3011 against the Canadian dollar.

The Swiss franc, also considered as a safe-haven currency, slipped 0.7 percent to 0.9859 against the dollar.

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