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Pound Slips as Qualms Over Brexit Begin to Take Shine Off Deal

James Hirai
·2 min read

(Bloomberg) -- The pound snapped a three-day winning streak as investors pondered the outlook for the service-oriented U.K. economy after a last-minute trade deal sealed its divorce from the European Union.

Sterling fell almost 1% against the dollar, leading losses among Group-of-10 peers, as analysts pointed to lingering questions over the terms of trade for services with the EU under the new arrangement struck last week. Low trading volumes accentuated the move, with markets in the U.K. and much of Europe closed for a public holiday.

While the historic trade agreement averted a catastrophic scenario that would have seen the U.K. crash out of the EU on Dec. 31 without a deal in place, it offers little clarity for financial firms and doesn’t include commitments on their market access. The services industry makes up about 80% of the U.K economy.

“This is markets slowly but surely acknowledging that this is not an optimal deal for the U.K.,” said Andreas Steno Larsen, global chief strategist at Nordea Bank Abp. “Most London-based banks didn’t exactly sound upbeat after the deal content became known, which could be a signal that the lack of agreement on financial services is an uncertainty that the pound will have to deal with through the first half of next year.”

The currency trimmed its decline to trade at $1.3451 as of 4:16 p.m. in London. It earlier touched $1.3430, the lowest level since Dec. 23, erasing its rally since the deal was struck.

The pound’s “weakness indeed is likely due to profit taking as well due to still high uncertainty as regards Brexit,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG. “There are still open questions regarding services trade, which is quite crucial for the U.K. economy as this is where its comparative advantage lies.”

(Updates prices.)

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