Sterling falls as dollar rebounds, UK minister says no-deal Brexit likely

The pound on Monday fell to its lowest in nearly three weeks, succumbing to a stronger dollar and comments by officials suggesting Britain could crash out of the European Union next year without securing a trade deal.

That has made investors increasingly edgy about the outlook for the currency despite signs of the economy improving somewhat and the Bank of England raising interest rates last week for the second time in over a decade.

British trade minister Liam Fox, a prominent Brexit supporter in Prime Minister Theresa May's cabinet, said over the weekend the odds of Britain leaving the EU without agreeing on a deal stood at 60-40.

"The voices forecasting a hard Brexit are becoming increasingly shrill. The FX market is slowly beginning to work out that these people might successfully torpedo a constructive solution," said Commerzbank currency strategist Ulrich Leuchtmann, in Frankfurt.

Sterling on Monday fell to $1.2970, its lowest since July 19, down 0.2 percent on the day. It also fell 0.2 percent against the euro to 89.15 pence and was the biggest loser against the greenback among major currencies in early London trading. Speculators' net short pound positioning slid to its highest level in 10 months, according to calculations by Reuters.

If Britain fails to agree the terms of its divorce with the EU and leaves without a transition agreement, it would revert to trading under World Trade Organization rules.

Most economists think that would cause serious harm to the world's No.5 economy as trade with the EU, Britain's largest market, would become subject to tariffs.

Supporters of Brexit say there may be some short-term pain for Britain's $2.9 trillion economy, but that long-term it will prosper when cut free from the EU.

On Friday, Bank of England Governor Mark Carney said the chances of a no-deal Brexit had become "uncomfortably high".