LONDON, Sept 12 — Sterling fell today after reports of a potential leadership challenge to Prime Minister Theresa May and as realism set in about how far there remains to go before Britain can agree a Brexit trade deal.
The pound fell a quarter of a per cent to as low as US$1.2994 (RM5.39) against the dollar after the BBC reported a group of about 50 lawmakers in May’s government had met to discuss how and when they could force her out of her job.
These lawmakers have condemned May’s plans for Britain to remain in a free trade zone for goods with the EU after it leaves the bloc in March, 2019.
The pound later recovered to trade flat at US$1.3028, while against the euro the British currency was largely unmoved, at 89.010 pence per euro.
In choppy trading in recent days, sterling had hit five-week highs of US$1.3087 on renewed hopes of a speedy Brexit deal with Brussels.
While recent signals from Brussels have pointed to renewed confidence that Britain and the European Union can agree a deal to govern trading relations after Brexit, divisions within May’s government over Brexit continue to rattle markets.
The pound has lurched up and down on almost every Brexit-related headline in the past week, as traders struggle to decipher whether Britain can avoid a no-deal Brexit when it leaves the EU.
Positive economic data in Britain published this week, including relatively strong GDP numbers, have been pushed into the background as investors focus on Brexit developments.
Traders and analysts say many investors are reluctant to take out big directional bets on sterling because of the uncertainty about where the Brexit negotiations are headed.
“The market is very focused on the immediate and now rather than the future,” said Neil Mellor, an analyst at BNY Mellon.
Mellor said that investors were increasingly confident EU head of states would rally round May to try and secure a Brexit agreement, reflected in the fact sterling had traded away from its 2018 lows of below US$1.27 in mid-August.
European Commission head Jean-Claude Juncker on Wednesday renewed a pledge of close trade and security ties with Britain after Brexit but said the European Union would not compromise on key withdrawal terms. — Reuters