The pound fell against both the euro and the dollar on Tuesday morning as fears continued that Britain is heading for a disruptive hard Brexit on 31 October.
Prime Minister Boris Johnson wrote to European Council president Donald Tusk late on Monday reiterating his call for the European Union to scrap the so-called Irish backstop.
He called for “alternative arrangements” to avoid a hard border in Ireland and urged the EU to help find “flexible and creative” solutions.
However, the Brexit proposals that meet with an immediately frosty reception in Brussels. An EU source told the Guardian: “The withdrawal agreement is not open for renegotiation and the backstop is not open for change.”
Sterling was down 0.3% against the dollar to $1.2089 (GBPUSD=X) and down 0.3% against the euro to €1.0906 (GBPEUR=X) at just before 8.30am UK time on Tuesday. It then recovered some losses but still remained down by 0.2% as of 1050am UK time.
“The primary problem is not renegotiating the deal between reasonable parties, it is the ability to pass it through parliament,” wrote Sebastien Galy, a senior macro strategist at Nordea bank.
“For that either new elections are needed or potentially the buy in of Labour. The situation is currently unclear. The British government may be forced into a hard Brexit deal by the threat of the Brexit party and it is unclear if the UK will be able to exit.
“If we had to put odds, there is a 40% chance of a deal that passes through given the flexibility shown by the UK government, a 40% chance of a hard Brexit and a 20% chance of continuing as is.”
Johnson is set to travel to Europe later this week for negotiations with Angela Merkel in Germany and Emmanuel Macron in France, ahead of the G7 gathering in Biarritz in the South of France over the weekend.