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Sterling dips as PM May's offer to quit fails to budge key lawmakers
[LONDON] The pound edged down on Wednesday after an offer by Prime Minister Theresa May to quit to get her European Union divorce deal through parliament failed to win over key opponents of the agreement.
Northern Ireland's DUP party, which props up Mrs May's government, said it would not support her Brexit divorce deal.
The move makes it highly unlikely Mrs May will get her deal through parliament at the third attempt.
Profound uncertainty about how, or even if, Brexit will proceed is keeping investors wary and weighing on sterling.
Mrs May's offer to quit - a last-ditch attempt to persuade rebels in her Conservative Party to back her - slightly lifted the pound earlier on Wednesday.
But the pound largely shrugged off Mrs May's promise and traded in a narrow range.
A series of indicative votes in parliament on alternatives to Mrs May's Brexit deal did little to break the impasse.
"Parliament is struggling to agree on anything and there remains a lingering concern that we could drift into a no-deal Brexit by accident - an outcome which presents the greatest downside risk to the pound," said David Cheetham, chief market analyst at broker XTB.
British politics is at fever pitch and traders are struggling to navigate the blizzard of headlines. The pound is volatile but remains around the same levels it traded at in late January.
After the votes on Wednesday the pound fell to a day's low of US$1.3156, down 0.2 per cent, in a broadly quiet session. Against the euro, it fell 0.6 per cent to 85.47 pence.
Mrs May has admitted she lacks support to put her Brexit withdrawal deal to a third vote and that has kept sterling under pressure.
A key question for investors is whether some of the most influential Brexit-supporting rebels, such as Jacob Rees-Mogg, decide to back 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.
Mrs May hopes to bring her deal back to parliament later this week.
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.