London: Once again, the day Britain is set to leave the European Union without a deal looms. And once again, pound traders are barely batting an eyelid.

Sterling may get a temporary reprieve from the Brexit frenzy if the EU grants the UK’s request for a further extension next week, allowing it to extend this year’s best performance among Group-of-10 currencies. Markets have increasingly priced out the prospect of a no-deal Brexit, with falling one-week implied volatility showing growing investor confidence that the current April 12 deadline will be postponed.

The focus now turns to the EU’s emergency meeting on Wednesday, when many strategists see the bloc granting the UK a second Brexit extension after deferring it previously last month. Although UK Prime Minister Theresa May has asked for a delay until June 30 and wants to leave even sooner if a divorce deal can be ratified before European elections next month, some analysts predict a longer extension.

“Once we get this long extension, participation in European parliamentary elections, our view is that then effectively the markets can put Brexit to one side for a while,” said Kamal Sharma, director of G-10 currency strategy at Bank of America Merrill Lynch. “That will ultimately see sterling gravitate above $1.35 [Dh4.95] and eventually up to $1.40.’’

The UK currency has advanced more than 2 per cent this year as the market bet against the risk of a chaotic separation. Although the threat of Britain crashing out of the EU without an agreement can’t be ruled out on April 12, one-week pound implied volatility versus the dollar fell to its lowest level since March 20 on Friday.

Still, hedge funds are at their most bullish on sterling since December, ratcheting up long positions on the currency, which increases the risk that a failure to get an extension could see heavy selling as traders rush to get out. Aberdeen Standard Investments is avoiding the currency and Investec Asset Management closed its long position at the end of last month.

“There have been a lot of reports and comments that the pound is the best trade in town and that it should strengthen,” said Georgette Boele, a senior foreign-exchange strategist at ABN Amro Group NV. “We are positive, but we think there is now too much focus that it is a done deal.”

However, for Nomura International Plc, the positive signs are too good to ignore. UK lawmakers are expected to complete legislation ruling out a no-deal exit next week, while May is in talks with the opposition Labour Party in an attempt to break the impasse.

“April 12 is unlikely to be a hard Brexit day,” said Jordan Rochester, a currency strategist at Nomura, referring to the possibility of a no-deal exit. “Less hedging is required.”