Sterling falls to one month low versus dollar hit by EU-UK ‘sausage war’

Sterling fell to a one month low versus the dollar on Thursday after Britain and the European Union failed to agree on solutions to post-Brexit trade problems in Northern Ireland.

The UK and the EU exchanged threats this week in a standoff that could cloud a weekend international summit hosted by Britain.

The British currency took a hit after the European Commission Vice President Maros Sefcovic said on Wednesday that the EU was considering advancing its legal challenge to Britain over UK action in Northern Ireland, which could result in a court case by autumn or the eventual imposition of tariffs and quotas.

Brussels accuses London of failing to implement checks on some goods moving from Britain to Northern Ireland and has started legal action over the British government’s unilateral extension of a grace period.

The row has been dubbed the “sausage war” by British media because it affects the movement of chilled meats.

British Prime Minister Boris Johnson then said he was optimistic over talks with the EU on smoothing trade with Northern Ireland, adding that the dispute would not overshadow the upcoming Group of Seven (G7) leaders summit.

But sterling continued to fall on Thursday, touching its lowest level versus the dollar since May 14 of $1.4074 in early London trading. By 0845 GMT, it was 0.2% lower at $1.4084 versus the greenback.

Versus the euro, the pound was 0.1% lower at 86.41 pence, touching a ten-day low against the single currency.

Analysts said that the rising number of COVID cases was also adding pressure on the pound, as it could delay further steps to fully reopen the British economy.

“Sterling is being compromised by a combination of EU trade negativity and uncertainty as regards the re-opening timetable,” said Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets.

U.S. President Joe Biden, ahead of his first meeting with Johnson, urged Britain to avoid imperiling the delicate peace in Northern Ireland.

On his first trip abroad since taking office in January, Biden will meet Johnson on Thursday in the English seaside resort of Carbis Bay ahead of the Friday-Sunday G7 summit.