Pound below nine-month highs before Brexit votes
The pound hovered below a recent nine-month high 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 tonight and the full process of finding an advisory plan could run through Monday.
"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.
Against the dollar, the pound was flat at $1.3195 and broadly unchanged at 85.36 pence against the euro. It hit a high of $1.3380, its highest level since June 2018 earlier this month.
Andrea Leadsom, who is in charge of the British government's business in parliament, has warned that lawmakers' plans to wrest control of the Brexit process on Wednesday may produce a result that the government cannot negotiate. 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.
Graphic: World FX rates in 2019 (http://tmsnrt.rs/2egbfVh)
Graphic: Trade-weighted sterling since Brexit vote (http://tmsnrt.rs/2hwV9Hv)