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Pound Nosedives After EU Commences Legal Action Against U.K.

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The pound plunged against its major counterparts in the European session on Thursday, after European Commission President Ursula von der Leyen said that it has initiated legal proceedings against the United Kingdom for breaching the Northern Ireland Protocol in the Brexit deal.

Ursula von der Leyen said that a "letter of formal notice" has been sent to the U.K. over its Internal Market Bill.

The bill overrode parts of the Brexit deal and is a breach of the obligation of good faith laid down in the agreement.

"If adopted as is, it will be in full contradiction to the protocol of Ireland-Northern Ireland," Von der Leyen said in a statement.

The Commission had granted one month to respond to the the formal letter of complaint.

Survey data from IHS Markit showed that the UK manufacturing sector continued its recovery from the coronavirus-induced economic slump in September, but the pace of growth was slightly less than initially estimated.

The seasonally adjusted IHS Markit/CIPS Purchasing Managers' Index for manufacturing fell slightly to 54.1 from August's two-and-a-half year high of 55.2.

The pound showed mixed performance against its major peers in the Asian session. While it rose against the greenback and the yen, it was steady against the franc and the euro.

After gaining to a 3-day high of 0.9061 at 5:00 pm ET, the pound turned lower against the euro, falling 1 percent to 0.9155. The pound was trading at 0.9067 a euro at Wednesday's close. Should the pound falls further, it is likely to test support around the 0.95 region.

Preliminary data from Eurostat showed that euro area producer prices continued to fall in August, though the pace of decline slowed more-than-expected.

Producer prices on the domestic market decreased 2.5 percent year-on-year following a 3.1 percent fall in July, which was revised from 3.3 percent. Economists had forecast a 2.7 percent decline.

The pound was trading at 1.2819 against the greenback, down by 1 percent from a 10-day high of 1.2950 it registered at 2:15 am ET. At yesterday's trading close, the pair was valued at 1.2912. Further drop in the pound may locate support around the 1.25 area.

The pound depreciated by 0.9 percent to 135.36 against the yen, after spiking up to 136.64 at 2:15 am ET, which was its biggest level since September 10. The pair had finished Wednesday's trading session at 136.14. Next near term support for the pound is likely seen around the 134.00 level.

The pound was down by 1.1 percent against the franc, at a 1-week low of 1.1773. This followed a 3-day high of 1.1909 seen at 9:00 pm ET. The GBP/CHF pair was worth 1.1893 when it ended deals on Wednesday. The pound is likely to face support around the 1.16 region, if it extends decline.

Data from the Federal Statistical Office showed that Switzerland's consumer prices declined further in September and retail sales grew.

The consumer price index decreased 0.8 percent year-on-year in September, following a 0.9 percent fall in August. Economists had expected a 0.7 percent fall.

On the economic data front, Canada building permits for August, U.S. weekly jobless claims for the week ended September 26, ISM manufacturing for September, construction spending for August and personal income and spending data for the same month will be released in the New York session.

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