The pound fell sharply against the U.S. dollar Wednesday after the European officials unveiled a draft bill of its version of the exit treaty it plans to negotiate with the United Kingdom as it plans to leave the bloc next year.
The draft bill, published by the European Commission, suggests Britain's access to the single market could be suspended during its transition from the bloc, the biggest economic area in the world, prior to the provisionally agreed 2021 deadline. The draft also calls for Northern Ireland to remain within the EU customs union in order to avoid a so-called hard border with the Republic of Ireland, a contentious issue in both Dublin and London that is linked to the 1998 Good Friday Agreement that ended decades of sectarian violence and create an de-facto interior border between Northern Ireland and the United Kingdom.
"The common regulatory area shall constitute an area without internal borders in which the free movement of goods is ensured and North-South cooperation protected," portions of the 119-page draft read.
The pound was marked 0.87% lower at 1.3787 following the draft's publication, the lowest since Feb. 9, extending its decline after Prime Minster Theresa May said that no U.K. leader could possibly agree to the EU's terms.
The EU draft text is seen by many as a shot across the bow of May and her Conservative government colleagues, whom chief negotiator Michel Barnier has accused of clinging to an "illusion" of a post-Brexit agreement with the European Union that would "cherry pick" the best parts of the bloc's trading rules while jettisoning key principles on freedom of movement and business regulation.
The draft also comes at an exceedingly difficult juncture for May and her thin parliamentary majority, which could face a defeat on its Brexit stance that could trigger fresh national elections after her main rival, opposition Labour Party leader Jeremy Corbyn, said he would negotiate Britain's inclusion in a customs union after it leaves the EU.
May's government has relied on the support of ten lawmakers from the Democratic Unionist Party, all of which are opposed to any so-called "regulatory alignment" between Northern Ireland and the Republic.
"The initial reaction is one of amazement that the EU thinks these kind of propositions both on the jurisdiction European Court of Justice and particularly on the Northern Ireland border issue with either us or the British government," the DUP's Nigel Dodds told BBC News. "Quite frankly, they are in some ways quite offensive in terms of the propositions being put forward."
Should May's "Brexit Rebels" in the conservative party vote with Labour on any Brexit transition deal, or the DUP lawmakers abandon their support based on any agreement with the EU that maintains that alignment, there is a strong likelihood of fresh national elections -- the third in three years -- in the United Kingdom.