LONDON- The pound fell against the dollar and euro on Thursday, little changed after Wednesday's reports that Brexit talks are at an impasse, and still held down by speculation about negative interest rates.
Sterling fell 1% on Wednesday after Britain told the European Union on Wednesday it needed to break a fundamental impasse to clinch a Brexit trade deal by the end of the year.
The pound is close to its lowest levels in more than three decades, as it grapples with Brexit, speculation about negative interest rates in Britain, a deep recession and a growing pile of debt.
The market has turned increasingly short on the pound for the last 11 weeks straight, according to weekly futures data.
"Sterling's only support is the size of the short positions, and thin month-end markets magnify that support, but that doesn't change the fundamentals," Societe Generale strategist Kit Juckes wrote in a note to clients.
Against the dollar, the pound held steady in early London trading, then began falling about 0930GMT. It was last at $.12249, down 0.1% since New York's close . Versus the euro, the pound was up around 0.1%, at 89.85 pence.
The last time the pound was at these levels was early October 2019, when investors feared a no-deal Brexit was imminent.
A COVID-19 test and trace service is due to start in England on Thursday to allow the loosening of lockdown measures for most of the population. Britain has the worst COVID-19 death toll in Europe.
But nearly half of businesses in Britain that have temporarily suspended their operations because of the coronavirus lockdown are unsure when they will re-open.
A Bank of England policymaker said on Thursday that he would not necessarily rule out negative rates, and that too much stimulus was better than too little.FI
"The question whether the BoE key rate is slightly above or below zero does not really matter," Ulrich Leuchtmann, head of FX and commodity research at Commerzbank wrote in a note to clients. "Monetary policy in the UK - just like almost everywhere else in the world - has pretty much reached the end of the line."
Lee Hardman, a currency analyst at MUFG, said the threat of negative rates was a key reason for the pound's underperformance and that it has downside risks towards $1.20 or just below.
(Reporting by Elizabeth Howcroft, editing by Larry King) ((Elizabeth.Howcroft@thomsonreuters.com; +44 02075427104;))