Sterling fell against a resurgent dollar and London’s Ftse 100 was weighed down as jitters about Britain crashing out of the EU with no deal returned to trouble investors.
Westminster is due to vote over successive days next week on any deal Prime Minister Theresa May can negotiate with the EU and on whether the UK will rule out crashing out of the EU.
“Theresa May continues to fight an uphill battle... However, while she remains adamant that she can find some form of concession from the EU, markets are instead preparing for the likely vote on whether to extend Article 50 or leave without a deal,” said Joshua Mahony, senior market analyst at online broker IG.
“For markets, the possibility of a no-deal Brexit will continue to be the biggest determinant for GBP weakness, and with the pound proving the weakest of all G7 currencies today, it is clear that Brexit uncertainty is starting to raise questions ahead of next week’s vote.”
Sterling fell against the dollar to $1.1317 and was little changed at 85.98p against the euro. Nonetheless, sterling has outperformed its peers this year and strategists see all signs pointing to more strength.
There is now just a 9% chance that the UK will leave the EU at the end of March without an agreement, according to a Bloomberg survey of banks.
Much more likely is that Britain’s exit will be delayed or even that Mrs May’s beleaguered deal will get through parliament, both of which are seen pushing the pound higher.
Survey respondents see a 54% probability of a delay beyond March 29, pushing the pound up to $1.33. The next most likely scenario is that Mrs May somehow gets her deal through a fractured House of Commons, with a 37% chance.
That is also seen by the banks as the best scenario for the pound, fuelling a rally to $1.38, a level not seen since April 2018.
“The wind is blowing a bit more favourably thanks to the realisation that the deadline is approaching,” said Kenneth Broux, a strategist at Societe Generale.
“The pound is now effectively trading an Article 50 extension but confirmation can give the pound another short-term lift,” he said.
The probability of a no-deal Brexit has fallen to just below 10%, according to the survey, from a one in five chance in a similar poll conducted in January.
This may seem a paradox with just weeks to go until Britain’s planned exit, but the confidence comes from Mrs May’s decision to offer the Commons a vote on alternatives if her plan doesn’t get enough support.
Additional reporting Bloomberg