LONDON: The pound stalled near seven-week highs on Monday as Prime Minister Theresa May made last-ditch efforts to garner lawmakers’ support for her Brexit divorce deal, which looks almost certain to fail when it is put to vote on Tuesday.
Sterling last week posted its fourth straight week in the black, rising on Friday on suggestions that Britain could seek to delay its scheduled March 29 date to exit the European Union.
But it has also benefited from recent dollar weakness and last week from a fall in the euro.
However, the outlook for the currency remains uncertain — a last-minute deal, a disorderly or no-deal exit, a new referendum or remaining in the bloc are all seen as possible. Each could have radically different consequences for the sterling outlook.
Theresa May is expected to tell rebel lawmakers in a 1530 GMT speech that Britain’s exit from the EU is now in peril from politicians seeking to thwart it, and that no-Brexit is now a more likely outcome than leaving without a deal.
MUFG analyst Lee Hardman said a defeat in parliament was largely priced into the pound, noting the currency was being supported by recent parliamentary amendments “which have shown parliament is beginning to exert more influence on Brexit proceedings to dampen ‘no-deal’ risk”.
By 1100, sterling traded flat on the day at $1.2845 (Dh4.7), just off seven-week highs of $1.2867 hit earlier in the session.
Against the euro too it was flat at 89.27 pence, after touching the highest since December 5 at 88.950 pence.
Despite the uncertainty, the risk that sterling will fall against the dollar is near the lowest in more than four months, according to one-month risk reversals, a gauge of market positioning.
Expectations for sterling price swings have also diminished in the last few sessions, with investors mostly convinced that the risk of a no-deal Brexit — the worst case scenario — has diminished.
“We still believe there is scope for a relief pound rally in the coming months if a no-deal Brexit is avoided at the end of March,” Hardman said.
