The British pound weakened today, pulling back from its highest level against the dollar in almost five months after hopes of a Brexit breakthrough began to shatter.

And as Brexit-optimism fades, investors profited from the pound also pulling back from the euro – its highest in five months – ahead of the make-or-break summit between Britain and the EU on Thursday and Friday.

By 07:58 GMT, Sterling was down 0.6% to 1.2699.

The euro gained 0.7% against GBP, trading at 0.8683, but was little changed against USD.

Should a deal be deemed fit by the EU, it will be presented to Thursday’s summit leaders for consideration.

However, the question is, will Britain’s minority government win approval for a deal from the country’s divided parliament in time for the October 31st deadline?

Pressure has mounted for FX traders as they nervously await updates from a last-ditch effort to see whether Britain and the EU can draft a Brexit agreement before the summit.

According to Britain’s negotiation officials, the differences between the two sides have narrowed significantly, causing the pound to rally yesterday.

Yukio Ishizuki, a foreign exchange strategist at Daiwa Securities in Tokyo, said:

Even if the two sides can agree on something, it is unclear if they can stick with the exit deadline. Whether Britain’s parliament will approve whatever has been agreed is another big uncertainty. Sterling had a good run-up, but some investors are lightening their positions.

Elsewhere in Asia, US-China strains boosted safe-haven yen, helping it claw back earlier losses after Beijing criticised the new US legislation – a move that was seen as supportive of pro-democracy protests in Hong Kong.

Hong Kong has been hit by months of violent protests against China’s rule of the former British colony.

The ongoing trade war between the countries has dragged on for more than a year and has already placed strains on their relations. therefore, any fresh strains make a resolution to their protracted trade war less likely.

Following ‘Phase 1’ talks, market sentiment initially turned positive, however, the lack of details surrounding the agreement has quickly dampened expectations.

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Dalia Hilmi
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