LONDON - Sterling extended its losses against the dollar and euro on Wednesday, and is having its worst month in four years as new coronavirus lockdown measures, the looming risk of a no-deal Brexit and talk of negative rates weigh on the currency.
Prime Minister Boris Johnson ordered restaurants and bars to close early and told British people to work from home where possible, in new measures which he said could last for six months.
The pound fell on the news, dipping below its 200-day moving average overnight, with losses compounded by a bounceback in the dollar, which has seen cable fall for three days straight.
"This is another negative impacting already grim GBP prospects, which however remain primarily driven by developments in EU-UK negotiations - where we have so far seen very little progress," ING strategists wrote in a note to clients.
The possibility of a no-deal Brexit is also weighing on the pound, although Britain has said it believes a trade deal is still possible.
Arriving in London for informal Brexit talks, the European Union's chief negotiator said he was determined to get a deal.
Johnson is close to getting parliamentary approval for his Internal Market Bill, which angers the European Union by breaking the Withdrawal Agreement struck in January.
At 1050 GMT, sterling was at $1.2725, down 0.1% since New York's close, having hit a 2-month low of $1.2676 earlier in the session. It has lost 4.8% so far in September, making this the pound's worst month since 2016.
Versus the euro, it was down around 0.1%, at 92.015 pence per euro, in its fifth consecutive day of losses.
British PMI data indicated the recovery from the first coronavirus lockdown lost momentum in September.
"The UK upswing will moderate sharply in the months to come – rising Brexit risks will reinforce the slowdown," wrote Berenberg economists Holger Schmieding and Kallum Pickering.
UBS Global Wealth Management wrote in a note to clients that a no-deal Brexit cannot be ruled out and would push the pound down to $1.25.
Analysts also say the possibility of negative rates is a downside risk for sterling.
Bank of England Governor Andrew Bailey said on Tuesday that the Bank's latest policy statement did not imply it would necessarily use negative interest rates, and that observers should not read too much into it.
(Reporting by Elizabeth Howcroft; Editing by Angus MacSwan and Barbara Lewis) ((Elizabeth.Howcroft@thomsonreuters.com; +44 02075427104;))