The pound fell against the dollar and the euro on Wednesday after reports suggested that the EU would only grant the EU an 8-week extension to the Brexit timeline rather than the three months that the UK Prime Minister wants.
UK Prime Minister Theresa May wrote to European Council chief Donald Tusk asking for a short extension of the Brexit deadline to 30 June.
However, the Financial Times reported lunchtime Wednesday that a European Commission paper is calling for a rejection of the request. The FT said the Commission is willing to only grant an extension to 23 May given that there are elections for the European Parliament that month and the UK would likely have to take part in these if it remains in the EU until the end of June.
The pound was already under pressure but took a leg lower against the euro and dollar after the FT report. Sterling was down by 0.8% against the euro to €1.15 (GBPEUR=X) and down by 0.7% against the dollar to $1.31 (GBPUSD=X).
Sterling was lower against the dollar and the euro in early trade on Wednesday as the request for a short extension was seen as increasing the risk of a disruptive no-deal Brexit. There remains no consensus around a Brexit withdrawal deal and there is scepticism that May will be able to gain enough support for her deal before 30 June.
There is also the possibility that the EU could reject May’s request for an extension.
“The clock is ticking and the default position remains that we exit on March 29,” Neil Wilson, chief markets analyst at Markets.com, said in an email. “I would still anticipate a last-minute reprieve as the EU will ultimately not wish to create further instability, but this is going down the wire.”
“With reports circulating that the Cabinet is pressuring Theresa May to abandon plans for a long Brexit delay request, instead insisting that she ask the EU for a 3-month extension, sterling was feeling anxious,” Connor Campbell, a financial analyst with SpreadEx, said in an email.
“That there are also rumours the PM will be forced to disclose her resignation date aren’t helping matters.”
The i reported on Thursday that May has been told by 30 Tory MPs that they will only support her deal if she agrees to resign.
Parliament voted last Thursday to ask the EU for an extension to the Brexit timetable after voting a day earlier to rule out a no-deal Brexit.