Sterling steadied after posting its biggest jump in two weeks on Tuesday as investors await the outcome of a cabinet meeting where Prime Minister Theresa May will try to convince her ministers to accept a draft European Union divorce deal.
As the EU braces for the biggest divorce in its history, Brexiteers in May’s Conservative Party have said they would vote the deal down, while the Northern Irish party which props up her minority government questioned whether she would be able to get parliamentary approval. The cabinet will meet at 1400 GMT.
“The outcome of the cabinet meeting will be a barometer test on the upcoming parliamentary vote the government will face to get the deal through,” said Fritz Louw, a currency strategist at MUFG in London.
In early trades, the British currency was flat at $1.2967 after briefly jumping more than 1 percent on Tuesday to $1.3047.
Brussels diplomatic sources had said they feared any delay in agreeing the text would increase the chances of rejection by May’s ministers or the British parliament.
Reflecting the growing nervousness among market participants over the cabinet meeting, implied volatility on the pound, a gauge of expected swings in the British currency, surged.
Sterling/dollar implied overnight volatility jumped to 23 percent on Wednesday, its highest since Britain’s general election in June 2017.
Against the euro, the pound fared slightly better with the currency strengthening 0.1 percent at 87.02 pence as concerns about the Italian budget also weighed on the euro.
