The pound drifted a quarter of a percent higher on Wednesday before a series of indicative votes in the British parliament on how to break the Brexit impasse.
With options including stopping Brexit to a new customs union to Prime Minister Theresa May’s existing deal still in the mix, markets doubt there will be a conclusion on Wednesday and the full process of finding an advisory plan could run through Monday.
But with May expected to indicate a date for quitting as the price for getting her twice-defeated Brexit deal ratified, some of the most influential Brexit-supporting rebels, such as Jacob Rees-Mogg, have reluctantly fallen in behind her deal.
“I think chances of May’s deal passing are higher than the market is expecting at the moment,” said Justin Onuekwusi, a portfolio manager at Legal and General Investment Management based in London.
The pound rose 0.25 percent to a day’s high of $1.3245 in a broadly quiet session. Against the euro, it strengthened 0.3 percent to 85.08 pence.
As the United Kingdom’s three-year Brexit crisis spins towards its finale, it is still uncertain how, when or even if it will leave the European Union, though May hopes to bring her deal back to parliament later this week.
“The possibility of no outstandingly well-supported option, however, remains, and would potentially obfuscate things still further,” Paul Markham, a portfolio manager at Newton Asset Management wrote in a blog post.
Still, on a weekly basis, the British currency was slightly firmer indicating that the recent events in the Brexit process have been welcomed with some cautious optimism though the risks of more political uncertainty have capped gains.
In a sign of how nervous the currency markets have become, expectations of how much the currency would move in the coming weeks have climbed faster than bets on how volatile the pound will be over a year.
One-month implied volatility in the pound has climbed by a quarter to nearly 13 vol and the spread between the one-month and one-year maturities has widened to its highest level since the British referendum vote in June 2016.
