Sterling fell from recent multi-month highs on Tuesday and sterling volatility rose in derivative markets. Traders weighed whether lawmakers would back a parliamentary amendment that would effectively take a no-deal Brexit off the table.
The UK parliament will vote on Prime Minister May’s response to the overwhelming rejection of her Brexit plan earlier this month.
But markets’ focus is on amendments that have been put forward by other lawmakers. Traders focus especially on one that provides for postponing the Brexit deadline should parliament not approve a divorce agreement with the EU by Feb 26. That amendment is considered the most likely to pass if the opposition Labour Party backs it.
However, sterling has retreated to stand at $1.3162. The British currency had hit a low overnight of $1.3130. The pound recently scaled 2 ½-month highs against the dollar on optimism that a no-deal Brexit would be avoided.
Against the euro it was 0.12 percent lower at 86.93 pence, holding below Friday’s 10-month highs around 86.18 pence.
Voting will begin at 1900 GMT. Nervousness was reflected in a rise in implied sterling volatility on options markets, which has fallen steadily since the start of the year. Overnight implied vol raced to near 23 vol, the highest since Jan. 15, when lawmakers defeated May’s Brexit deal.
START TRADINGForex – Commodities – Sterling volatility jumps before Brexit votes
Market participants are also focused on the U.S. Federal Reserve’s policy meeting on Jan. 29-30. Investors expect the Fed to adopt a more cautious stance on policy than it did in 2018.
The euro settled at a two-week high on Tuesday, moving in tiny ranges. Large derivatives market positions discouraged traders from taking large bets in an event-filled week.
The Sterling edged lower before crucial parliamentary votes later in the day that are aimed at breaking the Brexit deadlock. The pound has rallied 6% from Jan. 4 lows. However further gains may be limited unless lawmakers emerge with a vast majority on the votes.
In early London trading on Tuesday, sterling edged 0.1% lower to $1.3142 but remained near a 2½-month high of $1.3218.
Analysts expect sterling to remain volatile. Britain is set to leave the EU on March 29, but the British parliament is far from agreeing the leaving terms.
Sources: Reuters, Investing, CNN money
PLEASE NOTE The information above is not investment advice.