UKX FTSE 100 Index

By Caitlin Ostroff 

The British pound weakened against the dollar and U.K. stocks fell as the continuing failure to arrive at a post-Brexit trade agreement and new measures in the U.K. to curtail the spread of Covid-19 weighed on British assets.

Sterling fell as much as 2.3% against the dollar in trading before recovering some of its losses, ending the day 0.5% weaker. It fell 0.4% against the euro.

Over the weekend, the government imposed a fresh lockdown across London and the surrounding areas of England in the days leading up to Christmas, a period of traditionally higher consumer spending. The curbs are expected to further hamper the economic recovery.

Scientists said early analysis showed a new strain of Covid-19 found in England can spread 70% faster than earlier versions of the virus. In response, countries across Europe and beyond have barred travelers from Britain in an effort to keep out the new variant.

The U.K. is also now less than two weeks away from the end of the Brexit transition period, after which it won't remain in European Union trade agreements. Negotiations over a free-trade deal that would reduce some of the expected disruptions remain in deadlock.

Investors had hoped a compromise would be found Sunday. The lack of an agreement would see the U.K. fall back on bare-bones World Trade Organization rules in its trade with the EU, with tariffs from January on some trade between Britain and Europe.

"It does appear to be the perfect storm. We have the disappointment over Brexit -- people expected news of a deal would come Sunday and that didn't happen -- and then on top of that we have the news of the sudden policy turnaround for London and the southeast. That's going to have economic ramifications," said Jane Foley, head of foreign-exchange strategy at Rabobank.

British assets fell broadly, with the U.K.'s FTSE 100 Index down 2.2%. The FTSE 250, the gauge for small and midsize companies, declined 2.4%. Investors sought safer U.K. government bonds, sending the yield on the 10-year note to 0.204% from 0.242% Friday, according to Tradeweb. Yields fall when prices rise.

The new variant of Covid-19 and the U.K.'s new lockdown measures also weighed on global stocks. "It makes the near-term growth dynamic even worse than we were expecting," said Salman Ahmed, global head of macro at Fidelity International. "Other countries may follow suit with other restrictions as well if they find this strain."

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com

(END) Dow Jones Newswires

December 21, 2020 18:36 ET (23:36 GMT)

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