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The British pound lost about 0.5 per cent on Thursday after British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen agreed they have until Sunday to take a “firm decision” about the future of trade talks.
The European Commission and Britain remained “far apart” on Brexit trade deal, the bloc's chief executive said after what she described as a “lively” dinner with the British Prime Minister.
“It looks like there won't be any agreement to present to the EU summit starting today. Markets have been quite optimistic about a deal. I'm a bit surprised,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.
Bank of England Governor Andrew Bailey has warned a no-deal Brexit would cause longer-term damage to Britain's economy than the Covid-19 pandemic, and the impact of the change might be felt for decades.
The British pound dropped to as low as $1.3311 and last stood at $1.3345, down 0.4% on the day, though it stayed above this week's low of $1.3225 set on Monday.
The US dollar, which tends to fall when risk appetite is strong, held firm against other major currencies as an agreement on US stimulus remains elusive as proposals and counterproposals on Covid-19 aid have flown around the US Capitol.
The dollar index stood at 91.029, off Friday's 2 1/2-year low of 90.471. The dollar rose slightly to 104.28 yen.
The euro slipped to $1.2082, after four straight days of losses and down about a cent from its 2 1/2-year high of $1.2177 touched on Friday.
Also curbing appetite for the common currency, the European Central Bank is widely expected to expand its stimulus measures to prop up the recession-hit currency bloc at its policy meeting later on Thursday.
ECB President Christine Lagarde has made clear in recent weeks that a bigger Pandemic Emergency Purchase Programme (PEPP) and more subsidised long-term loans for banks will form the backbone of its policy measures.
Elsewhere, the Australian dollar stepped back to $0.7435 from Wednesday's high of $0.7485, a 2 1/2-year high, while the offshore Chinese yuan also hovered below its 2 1/2-year high set on Wednesday to trade at 6.5279 per dollar .
Bitcoin was last up 1.7 per cent at $18,622.
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