Mayday? Sterling falls as pressure grows on PM to step down over Brexit

LONDON - 25 March 2019: Sterling fell on Monday as pressure grew on Prime Minister Theresa May to give a date for leaving office ahead of parliamentary votes on Brexit.

Investors are bracing for another week of volatility in the pound with British politics at fever pitch and little clarity on how, when or even if Brexit will ever take place.

May met rebel lawmakers on Sunday in an attempt to find a way to break the deadlock and the Sun newspaper said her one chance of getting her Brexit deal approved by parliament was to name a date for her departure.

British lawmakers will seek in a vote on Monday to wrest control of Brexit from May after twice rejecting the deal she agreed with Brussels.

The EU has said Britain can have a short delay to Brexit but May must first win parliamentary approval for her withdrawal deal from the bloc.

The delay has not helped the pound much with the currency pressured by renewed fears about Britain leaving the EU without a deal to smooth the transition.

“The extension of the Brexit deadline was shorter than many had hoped and we still have the problem of what type of consensus deal lawmakers can rally around,” said Michael Hewson, chief market analyst at CMC Markets in London.

At 0930 sterling was down 0.2 percent at $1.3191. It was also down 0.3 percent against the euro at 85.79 pence

Monday’s parliamentary votes are aimed at giving lawmakers greater control over what the country does next and could definitively pull Brexit out of May’s hands in the coming days.

A series of ‘indicative votes’ are likely on Wednesday to test the water and see what could be successfully pushed through parliament.

“May probably hopes this will convince Brexiteers that her agreement is preferable to a long delay to Brexit but a ‘no deal’ exit remains possible,” said Societe Generale strategist Kit Juckes. “Sterling is likely to remain choppy and potentially untradeable.”

Currency derivative markets signalled a growing caution for the pound, with one-month risk reversals on sterling versus the euro and the dollar at multi-month highs.

An indicator of how bearish or bullish investors are on the outlook of the currency, so-called risk reversals signal that short-term negative bets on the pound are piling up rapidly despite the broader calm in the spot markets.