(Bloomberg) -- The pound fell in early Sydney trading after a weekend of intense talks failed to produce a Brexit deal that some market participants thought could be announced as early as this week.
“Despite intense efforts, some key issues are still open,” including the backstop for Northern Ireland and the Republic of Ireland to avoid a hard border, tweeted European Union’s chief Brexit negotiator Michel Barnier after meeting British counterpart Dominic Raab in Brussels on Sunday.
Sterling fell 0.5 percent against the dollar to 1.3085, a one-week low. Spot sterling had risen as much as 5 percent from a year-to-date low of 1.2662 reached in August, as hopes for a resolution to the Brexit impasse grew.
We met today @DominicRaab and UK negotiating team. Despite intense efforts, some key issues are still open, including the backstop for IE/NI to avoid a hard border. I will debrief the EU27 and @Europarl_EN on the #Brexit negotiations.
— Michel Barnier (@MichelBarnier) October 14, 2018
U.K. Prime Minister Theresa May is set to meet EU counterparts on Wednesday. A meeting of EU governments scheduled for Monday has been canceled, several diplomats said, and there will be no more negotiations before leaders meet on Wednesday. If the process were to fall apart, leaders have until a planned December gathering to decide what to do.
The need to limit the time Britain stays in the EU tariff regime is one of May’s headaches, with pro-Brexit ministers threatening to quit if she keeps the country locked in indefinitely. She also faces opposition to her plans from the Northern Irish party her government relies on for votes in Parliament. Those party leaders have said they will not accept a border between Northern Ireland and the Republic of Ireland.
The risks to a bullish sterling view include leaders not agreeing on the Brexit divorce terms this week, as well as U.K. lawmakers not ratifying such a settlement in Parliament later in the year. The Democratic Unionist Party in Northern Ireland has reportedly refused to back her fiscal plans if a solution to the Irish border conundrum isn’t found.
Both the U.K. and the EU have stepped up contingency planning in case negotiations fail. Britain’s Chancellor of the Exchequer Philip Hammond said last week he was readying the government’s reserves in case Brexit hits the economy and he needs to intervene.
