The pound fell sharply against the dollar on Friday after the European Commission’s chief Brexit negotiator said that the bloc would not grant the UK a transition period if disagreements in negotiations persist.

Sterling was trading around $1.38 late afternoon following the comments, around 0.7 per cent lower on the day against the US currency. On Thursday, the pound had surpassed the $1.40 mark after the Bank of England kept interest rates on hold but indicated that they could rise sooner than previously expected.

Speaking to reporters in Brussels, Michel Barnier said that a transition period for the UK post-Brexit was “not a given” and that “there will undoubtedly be a problem” if the UK sticks to its guns.

(Thomson Reuters Eikon)

There are still several sticking points in negotiations. The UK has demanded a power to object to new rules imposed on it during the transition period, restrictions on the rights of EU citizens who come to Britain during the transition, and the ability to opt in to certain European policies.

The pound has enjoyed a stellar start to the year, and in 2017 was one of the best performing major global currencies. But it’s rally is showing signs of stalling.

A Reuters poll published on Thursday showed that forecasters now generally think that concerns will start weighing on sterling’s value afresh.