October 1, 2019 / 7:59 AM / 13 days ago

Sterling sinks to one-month low as Johnson's Brexit plans eyed

LONDON (Reuters) - The British pound extended losses on Tuesday, plunging through technical support levels to a one-month low against the dollar as traders became increasingly nervous about Britain crashing out of the European Union at the end of the month.

An employee is seen walking over a mosaic of pound sterling symbols set in the floor of the front hall of the Bank of England in London, in this March 25, 2008 file photograph. REUTERS/Luke Macgregor/Files

Broad-based dollar strength also contributed to the falls, analysts said.

With Prime Minister Boris Johnson expected to soon present his proposals for an amended Brexit agreement, investors questioned the likelihood of Brussels finally signing a divorce deal with the United Kingdom.

“There’s no reason (for sterling) to go up unless the EU says yes we can negotiate on this,” said Kenneth Broux, corporate FX strategist at Societe Generale, adding that the pound could fall to $1.20.

By 1415 GMT, it was down 0.6% at $1.2228 GBP=D3, having briefly dipped to a four-week low of $1.2205. Against the euro, sterling was down 0.7% at 89.21 pence EURGBP=D3 after sliding to a 2-1/2-week low of 89.345 pence.

More than three years after the 2016 Brexit referendum, Britain is heading towards an Oct. 31 departure date without a clear understanding of whether it will leave with a deal, without a deal or even leave by the deadline.

The government’s proposals are expected to include new ideas that remove the contested insurance policy for the Irish border that Britain previously signed up to, but EU officials sounded sceptical about the chances of a breakthrough.

Moreover, Ireland dismissed reported ideas including physical checks on goods at a distance from the border itself.

“The market has seen these kinds of headlines before and then we get a push back, so there is some scepticism about what we will see,” said Jane Foley, senior currency strategist at Rabobank, referring to the expected government proposals for the backstop.

“That leaves sterling in a choppy range and there is plenty of news flow this week,” Foley said.

Broad-based gains for the dollar on renewed evidence of strength in the U.S. economy contributed to the earlier slide in the pound.

Chartists said earlier in the day they were watching the $1.2279 level, the 50-day moving average - a technical indicator that refers to the currency’s average closing price over the past 50 days.

A conclusive breach below that level would open the door to further losses, they said.

The latest UK economic data had little immediate impact on the British currency. The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index showed the factory sector overall shrank for a fifth month in a row, its longest decline since mid-2009.

Reporting by Dhara Ranasinghe; Additional reporting by Olga Cotaga and Sujata Rao; Editing by Alison Williams, Christian Schmollinger, Kirsten Donovan

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