Sterling skidded to its weakest since June, 2017 on Monday after media reported that Prime Minister Theresa May would delay a parliamentary vote on Britain’s Brexit deal with the European Union which she had been widely expected to lose.
The pound dropped sharply against the euro and the dollar after Bloomberg and the BBC cited sources as saying May would pull the vote.
But the prime minister’s spokeswoman said earlier on Monday that the vote would go ahead as planned and described a conference call with ministers due at 1130 GMT as routine.
“GBP has come off initially on the news that the vote has been pulled,” said John Marley, at FX risk management specialist, Smart Currency Business.
Marley said the reason behind a decision to delay the vote would dictate the pound’s direction.
“One scenario is that the May wants to avoid an embarrassing defeat… another is that she may be very close to securing agreement from the EU [with further negotiation] so sterling could still move either way from here,” he said.
The pound fell half a percent against the dollar to $1.2656, its lowest since June 2017. It also slipped 0.7 percent against the euro to 90.18 pence, its lowest since Sept. 7.
Britain’s exporter-heavy FTSE index climbed as sterling fell, up 0.1 percent by 1150 GMT. The more domestic, FTMC index tumbled, down 1 percent as the reports May could delay the parliamentary vote triggered renewed uncertainty.
Perceived safe-haven British government bonds rallied on the news, with 30-year yields dropping as much as 7 basis points on the day to a 3-month low of 1.759 percent.
The pound has fallen for four consecutive weeks with traders trying to predict how the currency could react if May loses the vote on Tuesday.
If lawmakers vote against the deal, scenarios include a no-deal Brexit, a renegotiated deal and a second referendum.
Easing concern about Britain crashing out of the bloc in March without a deal, the EU’s top court ruled on Monday that the British government may unilaterally reverse its decision to leave.
“The likely loss of the vote accompanied by the growing risk of a leadership challenge (to May) should be negative for the pound and send EUR/GBP above 0.9000 this week,” said Chris Turner, head of currency strategy at ING in London.
Analysts have been focussing on the number of votes May could win or lose by – if the vote were to go ahead – and what that could mean for her chances of re-negotiating a deal with the European Union.
A Reuters poll predicted a 2.75 percent fall in the currency should the vote fail to pass.
An emphatic defeat for May by a margin of about 100 votes would leave her withdrawal agreement in tatters and propel sterling into the unknown.
