GBP/USD sharply lower on Brexit jitters

The British pound has greeted traders with sharp losses at the start of the trading week. In the North American session, GBP/USD is trading at 1.3161, down 0.90% on the day.

Johnson in a fighting mood ahead of talks

With US markets on holiday for Labour Day and British events limited to tier-2 data, one could easily have expected that GBP/USD would enjoy a quiet day. However, this has not been the case, as the pound has fallen close to 1 percent and suddenly finds itself at a 10-day low against the greenback. The reason? The Brexit talks between London and Brussels resume on Tuesday, and the British government has been sending out signals that it is content if the talks break down and the two sides fail to reach an agreement.

Officially, the sides have until the end of the year to reach a free trade agreement, but European officials have circled an EU summit in mid-October as an unofficial deadline to reach some type of agreement. The mood is gloomy, as there is little trust or goodwill between the sides, after years of bickering and finger-pointing ever since the Brexit referendum back in June 2016. There are substantive areas of disagreement, such as fishing rights, the mechanism for enforcing a new trade deal and whether EU rules would apply to areas such as the environment and workers’ rights.

On Sunday, David Frost, the UK’s chief Brexit negotiator, said that the UK was not afraid of walking away from the talks in December and was fully prepared to trade with the EU without a trade deal in place. His counterpart in the EU, Michel Barnier, said he was “worried and disappointment” by the hardline British approach to negotiations. Later on Monday, Boris Johnson is expected to warn that if no agreement is in place at next month’s EU meeting, he is prepared to walk away from the talks, and this would be a “good outcome” for the UK. Is Johnson simply blustering as part of his negotiations tactics? If so, he is engaged in a dangerous game of chicken. With some 40% of British goods going to the EU, it’s clear that failure to reach a deal will cause severe disruption in economic ties between the EU and the UK, and that could have a negative impact on the British pound.

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GBP/USD Technical

GBP/USD lost ground in the Asian and European sessions. The pair is flat in North American trade.

• GBP/USD broke below support at 1.3196 in the Asian session. Below, there is support at 1.3114, protecting the 1.31 level
• There is resistance at 1.3339.
• The pair has broken below the 10-day level, which is a bearish sign for the pair

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