TEHRAN (Iran News) – Pound fell sharply on Monday after Prime Minister Boris Johnson set out tough terms for European Union talks, rekindling fears Britain would reach the end of an 11-month transition period without agreeing on a trade deal.

The sides have until the end of the year, when a standstill transitional period expires, to secure a deal on trade and future relations but Johnson is striking a tough tone, saying Britain will not adhere to the bloc’s rules and regulations.

The EU, on the other hand, has warned Britain that access to its single market of 450 million people will depend on how far London agrees to adhere to such rules on environmental and labor regulations.

“Pound appears to be coming off on the not very encouraging signs by Johnson and the other side of the negotiations. They are positioning themselves at two extremes,” said Adam Cole, chief currency strategist at RBC Capital Markets in London.

By 0915 GMT the pound was down 0.8% at $1.3105 GBP=D3 while against the euro it had fallen 0.5% to 84.43 pence EURGBP=D3.

It had ended January on a high, with the best weekly gain in a month after the Bank of England kept interest rates steady at 0.75%, surprising some who had expected a 25 basis-point cut.

The dollar has also reversed some of its weakness from last week.

ING analysts said that Johnson wanted to signal that he had no interest in regulatory alignment and was prepared to walk away from talks.

“This will probably characterize negotiations over the next 9-10 months and stands to drag cable back to the lower end of its $1.29-$1.35 range,” they said in a research note.

Positioning data from the US Commodity Futures Trading Commission data showed speculators’ bullish bets on sterling had moderated in the week to Jan. 28 but remained broadly intact.

However, there is little sign derivatives are pricing big sterling swings, with one-month as well as one-week implied volatility gauges subdued GBP1MO=FN.

The implied volatility premium to buy one-month sterling ‘calls’ over puts — options conferring the right to buy and sell, respectively — remains in place over a one-month period GBP1MRR=FN.