Sterling is higher on Friday
The sterling rose on Friday and was slightly above the nearly 2-week low struck in the previous session, as investors waited for a long weekend of headlines on the progress of the EU-UK negotiations.
The British currency was higher at $1.3081. It has reached its lowest level since Feb. 25 at $1.3067 in the previous session, as disappointment that the revised Brexit deal is unlikely to materialize soon sapped demand.
Less than 3 weeks before the UK leave the EU, officials are at an impasse over the so-called backstop aimed at securing a frictionless border between the British province of Northern Ireland and the EU member Ireland.
Lawmakers will vote next week on the withdrawal agreement that British Prime Minister Theresa May negotiates with Brussels and which they rejected in January. May will say on Friday that the EU should give ground before then in discussions to help the deal, which includes a transitional period to minimize the economic disruption from Brexit pass in parliament.
“With all alternatives still on the table, the most reasonable trading alternative seems to be to just minimise one’s exposure to the pound and stay away for now,” Richard Falkenhall, a senior FX strategist at SEB said.
Uncertainty about whether UK lawmakers will support May’s deal the next week appears in currency derivatives markets, with 1-month implied volatility rising to its highest levels since the middle of January.
One-week volatility indicators are even higher, rising to 15 vol from to 9 vol earlier this week, while investors are preparing for a series of votes in Parliament next week.
Sterling may lose about 9% of its current value against the dollar and trade at $1.20 in the immediate aftermath of Britain leaves the EU without a deal, a Reuters poll predicts.
The EU told the UK to rework its backstop proposal by Friday, but a British source said on Thursday that the Brexit impasse would hardly be interrupted before the weekend as the EU was not moving.