TOKYO (Reuters) – The British pound fell on Tuesday after reports UK Prime Minister Boris Johnson was seeking a hard line on Britain’s transition period after Brexit, effectively creating a new cliff in its negotiations with Brussels.

Sterling dropped as much as 0.7% to $1.3236 GBP=D4, as its Friday’s 1-1/2-year peak of $1.3516 looked increasingly like a near-term peak following the massive relief rally after last week’s UK election.

Johnson’s revised Withdrawal Agreement Bill would require the United Kingdom to have arrangements to leave the European Union be in place by Dec. 31 next year, UK broadcaster ITV reported on Monday.

The move dashes hopes Johnson would take a flexible approach to the end-2020 deadline for a trade deal with the EU after Britain leaves the bloc, which now looks almost certain to happen on Jan. 31 following the landslide Conservative election win.

“Common sense suggests that crafting a trade deal would take at least more than a year, so markets had assumed that the transition period will be extended,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“It seems like the big majority Johnson won is enabling him to take a hard line approach, which the market doesn’t like so much… Considering the UK economy looks set to deteriorate as people and companies start to leave the country because of Brexit, sterling’s short-covering rally is over,” he added.

Other major currencies saw limited moves as investors sought more details on an interim trade deal the United States and China struck last week. The deal has broadly capped safe-haven currencies, such as the yen, and supported risk-sensitive currencies.

Against the yen, the dollar traded at 109.56 yen JPY=, up 0.05% from late U.S. levels, having gained 0.15% on Monday to edge near six-month high of 109.73 hit on Dec. 2.

The euro stood at $1.1147 EUR=, maintaining its uptrend from its seven-week low of $1.1098 touched on Nov. 29.

The deal, announced on Friday after more than two-and-a-half years of volatile negotiations between Washington and Beijing, will reduce some U.S. tariffs on Chinese goods in exchange for increased Chinese purchases of some U.S. goods.

Graphic: World FX rates in 2019 – here

Source: Read Full Article