The pound steadied on Thursday as Britain prepared to resume negotiations with the European Union over how to resolve the issue of Irish border arrangements after Brexit.
Sterling has strengthened four per cent this year due to a weaker dollar and expectations that Britain can avoid a no-deal Brexit, a scenario trader see as the worst case scenario for the pound.
At 0900 GMT sterling was flat against the dollar at 1.3117 dollar, not far off a 3-month high of 1.3214 dollar. It was flat against the euro too at 87.6 pence.
The British currency fell sharply on Tuesday after lawmakers voted to demand Prime Minister Theresa May renegotiate the terms of Britain’s exit, but has since recovered from those losses.
Investors are trying to figure out whether May’s Conservative Party rallying around her has increased the chances of her securing concessions from the EU – which would likely boost sterling – or has pushed Britain toward further deadlock and uncertainty.
“EU leaders have a new script that developments in London make a disorderly Brexit more likely,” said Petr Krpata, an FX strategist at ING in London.
“However, this should be seen as positioning and even if May returns from Brussels empty-handed, the prospect of a fresh set of amendments being debated in London Feb 13/14th can keep GBP supported,” he added.
The renewed uncertainty over Brexit has caused money markets to reduce expectations that the Bank of England will raise interest rates in 2019.
The probability is now only 52 per cent, compared with 64 per cent on Tuesday before the vote.
