LONDON, October 23 — Sterling slipped today further off recent highs around US$1.30 (RM5.45) after the British parliament voted to approve the withdrawal deal but rejected the tight timetable to legislate on the deal in time for the October 31 deadline.
British Prime Minister Boris Johnson told parliament that if it defeated him on the timetable and forced a delay until January he would abandon his attempt to ratify the deal and push for an election before Christmas instead. That led investors to price in elections and Brexit delay.
“Sterling retraced some of its gains again last night after many optimists had to realise that the hope of a happy end next week has now died,” Commerzbank analyst Antje Praefcke told clients.
“However, as the extension means that we are entering a new round and as a hard Brexit is unlikely the losses are likely to be limited short term. Sterling will probably remain at its comparatively high levels for now and wait for things to come.”
Sterling was unchanged against the dollar by 0900 GMT after falling 0.62 per cent yesterday. Against the euro, sterling fell 0.1 per cent, last trading at 86.44 pence.
Two-week implied volatility on sterling — a contract that captures the October 31 Brexit deadline, continued to fall, indicating there is little fear of a no-deal Brexit around that date. It was trading around 11.3 per cent, the lowest since October 10.
However, the renewed uncertainty especially around possible elections, boosted British government bonds, pushing 10-year yields more than five basis points lower to the lowest since October 16.
RBC analysts said that if the European Union granted the UK an extension, as seems likely, the pound would reverse the most recent losses. But they added: “If we are heading for an early election, expect further, but limited, downside.” — Reuters
