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Sterling steady as traders wait for another Brexit deal vote in parliament

Brenda

Oct. 21, 2019

LONDON, Oct 21 (Reuters) - Sterling held steady on Monday as investors assessed the outlook for Brexit developments this week after parliament forced Prime Minister Boris Johnson to write to the European Union to ask for a delay to Britain leaving the bloc.
The pound remained within a whisker of its recent highs though as most market participants believed a no-deal Brexit was off the table.
Johnson could pass the deal he reached last week with the EU by either winning a "meaningful vote" on it on Monday - if the lower house speaker allows a vote to go ahead - or by securing a majority when the Withdrawal Agreement Bill is introduced on Tuesday.
Either way, the probability of Britain crashing out of the EU on Oct. 31 without a divorce deal has dropped significantly, analysts said, after Johnson was forced to seek a third postponement of the departure date.
His chances of winning parliament's approval for his deal were relatively high, analysts also said, which is the main reason sterling is still trading close to the five-month high it reached last week.
The pound was flat at $1.2989 after jumping briefly to a fresh five-month high of $1.2993 earlier, its highest since May 13. Against the euro, the pound was also flat at 86.04 pence.
Jeremy Stretch, forex analyst at CIBC, said he expected "good sterling buying interest should we see any dip back towards $1.2750."
"The UK leaving the EU with a deal remains the most likely ultimate outcome, in our view, although not necessarily by Oct. 31," said Paul Hollingworth, chief UK economist at BNP Paribas, adding that he expects "bullish sentiment to persist."
Broader market sentiment seemed to mirror Hollingworth's view, as gauges for implied sterling volatility in different tenures eased off recent highs.
Overnight volatility slipped to 19.6 vol from a three-year high of 30.3 vol on Saturday. One-month implied volatility, which encompasses the still relevant Oct. 31 Brexit deadline, also declined.
Moreover, leveraged funds had fewer sterling short positions than in August, although volumes increased very slightly to $5.53 billion in the week to Oct. 15, CFTC data showed.
Some said sterling could still swing around as uncertainty lingers over Brexit.
"While the reason that sterling has remained pretty well supported is because of this perception that Johnson does have the numbers and a deal could happen in the next few days, there's still plenty of scope for volatility," said Jane Foley, senior currency strategist at Rabobank.
Britain could still leave the EU in 10 days time, French Junior Economic Minister Agnes Pannier-Runacher said on Monday.
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