LONDON: Sterling fell against the euro on Thursday after the European Central Bank approved a bigger-than-expected expansion of its stimulus package, boosting the common currency.
The pound also remained driven by the ongoing Brexit negotiations happening this week and by the late June deadline by which Britain needs to say whether it wants an extension of the transition period.
Just months after a first raft of crisis measures, the ECB said it would raise bond purchases by 600 billion euros ($674 billion) to 1.35 trillion euros and that they would run at least until end-June 2021, six months longer than first planned, propping up the euro.
The pound was last 0.7% down against the euro at 89.96 pence, having weakened to 90.03 pence earlier, lowest since Monday. Sterling edged up against the US dollar to $1.2611, up 0.3% on the day.
Worries that Britain will exit the European Union without a trade deal at the end of the year continued to weigh on the British currency.
“My sense is that the market is selling sterling again and this will continue this month on fear that we might not get a deal or an extension, so there are some preparations for a worst-case scenario – Brexit without a deal, which is a possibility," said Neil Jones, head of European hedge fund sales at Mizuho.
Some market participants, however, believe that the December transition deadline might get extended because of the new coronavirus pandemic, which slowed down Brexit negotiations, keeping the pound near the top of its recent trading range.
Societe Generale sees a 63% chance of an extension to the transition period, and an 83% chance of a deal.