LONDON (Reuters) - The pound fell to a five-month low against the euro on Tuesday as the single currency rebounded and investors worried Britain could crash out of the European Union without securing a trade deal.
Sterling, which has had a tougher time against the dollar in recent months, helf steady versus the greenback after hitting an 11-month low on Monday.
But with the euro strengthening across the board the pound fell 0.4 percent to 89.620 pence per euro, its weakest since early March.
“The more we hear the phrase ‘no-deal Brexit’, the more likely the pound will be kept under the cosh,” said David Madden, a market analyst at CMC.
“The British side might give off the impression they would be content without a deal in order to force Brussels’s hand [so] the pound could be in for a rocky ride in the near-term.”
Sterling edged up away from Monday’s trough of $1.2920, before trading flat on the day at $1.2946.
Against the dollar the British currency sank on Monday to the 11-month lows after Britain’s trade minister suggested the UK could leave the EU in March without a deal in place to structure future relations with the bloc.
The pound has fallen more than 10 percent since mid-April, and with the government yet to agree a divorce deal with Brussels, currency traders are growing edgy about its outlook.
A lack of Brexit headlines and a pause in a rally by the dollar on Tuesday brought some respite for the currency, but analysts said that would likely only be temporary.
Traders are now preparing for Friday’s reading of second-quarter British economic growth numbers.
“GBP-bulls who are waiting for the data on Friday are having to endure quite a lot of pain,” said analysts at Commerzbank in a note.
“How positive can the data - that only ever describes the past - actually become to be able to cover up the [larger] risks the UK economy is facing?”
If Britain leaves the EU without a transition agreement, it would revert to trading under World Trade Organization rules.
Most economists think that would cause serious harm to the world’s fifth-largest economy as trade with the EU, Britain’s biggest market, would become subject to tariffs.
Supporters of Brexit say there may be some short-term pain for Britain’s $2.9 trillion economy, but that long-term it will prosper when cut free from the EU and able to strike trade deals with faster-growing countries and regions elsewhere.
Reporting by Tom Finn; Editing by Janet Lawrence