Pound sinks on reports Merkel has rejected Johnson’s Brexit offer

Britain's Prime Minister Boris Johnson and German Chancellor Angela Merkel are seen ahead of their news conference at the Chancellery in Berlin, Germany August 21, 2019. REUTERS/Fabrizio Bensch

The pound sunk on Tuesday following reports that German chancellor Angela Merkel had comprehensively rejected prime minister Boris Johnson's Brexit offer.

The BBC first reported that Downing Street has now concluded that a Brexit deal is "essentially impossible" after Merkel told Johnson on a Tuesday phone call that a deal based on the UK's latest Brexit proposals was unlikely.

The pound fell by more than 0.4% against the dollar (GBPUSD=X) to around £1.225. It declined by as much as 0.68% against the euro (GBPEUR=X), to €1.11, a four-week low.

According to a Downing Street source, Merkel said that the UK must accept that Northern Ireland must remain part of the European Union's customs union if it wants to reach agreement on a deal with the bloc.

The pound fell to a four-week low against the euro on Tuesday. Chart: Yahoo Finance

The German government has not yet commented on the call, which was held at 8am on Tuesday. The Downing St source described it as a "clarifying moment" for Johnson.

A proposal put forward by Johnson last week would see the controversial backstop, which is designed to prevent a hard border in Northern Ireland, replaced with a system that would include "decentralised" economic controls.

Though Northern Ireland would leave the EU's customs union, an "all-island regulatory zone" could be implemented on a rolling basis every four years.

The plans have been rejected by the business community in Northern Ireland and the majority of political parties there, and the EU believes that the plan could cause major disruption to Ireland's all-island economy.

"Sterling is under the cosh again as hopes of a deal between the UK and EU fade. The last flicker of hope was snuffed out this morning after a call between the prime minister and chancellor Merkel of Germany left the process at an impasse," said Neil Wilson, the chief market analyst at Markets.com, in a note.

- This article first appeared on Yahoo

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