Sterling rose on Monday in volatile trade as investors braced for parliamentary votes on Prime Minister Theresa May’s Brexit’s deal that could decide on what terms – if at all – Britain leaves the EU in less than three weeks.
No breakthrough emerged from weekend talks between the British government and the EU over May’s wish to amend parts of the divorce agreement related to the Irish border.
As a result, in a vote on Tuesday evening lawmakers are expected to reject – for a second time – the withdrawal agreement May negotiated with Brussels last year.
If that happens, she will face another vote on Wednesday on whether parliament wants to leave the EU without a deal, with a majority expected to refuse the “no-deal” scenario as economically disruptive.
A third vote would then be held on Thursday on whether Britain should request from the EU a “limited” extension of the March 29 Brexit date.
“A delay to Brexit would be modestly positive for sterling, reflecting the reduction of the risk of hard Brexit,” said Kallum Pickering, an economist at Berenberg.
“However, it would not completely eliminate the hard Brexit risk which could still come at the end of a delay or as a result of a second referendum,” he added.
At 1345 GMT sterling was up 0.6 percent at $1.3092 after falling in the previous eight consecutive sessions. It was also up half a percent against the euro at 85.89 pence.
Earlier in the session, the pound fell after a Sun Newspaper report said May would change Tuesday’s key vote on her Brexit deal to a less decisive provisional vote, raising the prospect of more uncertainty for the struggling currency.
May’s spokesman then said the vote would go ahead as planned.
Britain is due to leave the EU in 18 days and the pound has weakened in recent weeks as doubts swirl over how, or possibly even if, Britain’s exit will take place.
Most economists expect Brexit to be delayed by a few months and the two sides to eventually agree a free-trade deal, according to a Reuters poll.
Traders are expecting big swings in the currency around this week’s votes, according to a sharp rise in one-week implied volatility.
One-week implied volatility measures demand for options to hedge against big currency swings. A higher percentage reflects greater expectations of currency movements over the next seven days.
