Sterling retreats below $1.30 ahead of key Brexit votes - REUTERS
BY Tom Wilson
LONDON (Reuters) - Sterling moved down on Tuesday as investors awaited votes in the British parliament that will determine whether the United Kingdom can leave the European Union at the end of October.
Prime Minister Boris Johnson faces two crucial Brexit votes in parliament later in the day, with his promise to lead Britain out of the bloc on Oct. 31 hanging in the balance.
Lawmakers will vote at about 1800 GMT on Johnson’s so-called Withdrawal Agreement Bill and then on the government’s tight timetable for approving the legislation.
Defeat in either vote would scupper Johnson’s plans to leave the EU at the end of the month. He would then have to decide whether to abide by a law that demands he accept any Brexit delay offered by the EU, or somehow leave without a divorce deal.
But markets now see the last possibility as unlikely and that has boosted the pound about 6% since Oct. 10, lifting it to 5-1/2-month highs of $1.3012 on Monday.
“The downside risks for sterling are rather limited at this point, and a no-deal Brexit seems rather unlikely,” said Thu Lan Nguyen, FX strategist at Commerzbank.
“Even if parliament doesn’t pass the bill and we get an extension, sterling will stablise.”
Sterling slipped 0.1% to $1.2947 in early London trading. It was flat against the euro, and was last trading against the single currency at 0.86050.
Analysts at MUFG said the deal would have to pass through parliament without any hitches for sterling to sustain levels above $1.300, cautioning that this was not yet a foregone conclusion.
“It is not yet a done deal and may still require another Brexit extension and snap general election to break the deadlock in parliament,” they wrote.
Sterling implied volatility - the gauge of expected swings in a currency - has trended lower as the risk of a no-deal Brexit has faded. But overnight implied volatility surged ahead of the parliament vote to over 26%, the highest since mid-2017.
Reporting by Tom Wilson; editing by Sujata Rao and Angus MacSwan