Sterling slid against the euro as the request by Prime Minister Theresa May for a Brexit extension increased market tension over the latest drama in British politics.
Ms May wrote to Brussels asking to delay Britain’s European Union departure until June 30 to allow MPs agree a withdrawal deal.
France and the Netherlands expressed doubt about the plan and that, combined with lingering fears of a no-deal Brexit, sent the pound 0.4% lower against major currencies, to trade at 86.1p against the euro.
Since the referendum in June 2016, the UK currency has been a good gauge of market fears over a no-deal or hard Brexit.
Following the vote, it plunged as low as 92p as Ms May sought a hard Brexit and threatened a no deal to get her way in talks with Brussels and to keep her Conservative Party from splitting.
It has since risen as financial and betting markets wagered that a no deal outcome was unlikely.
The pound would gain if a delay led eurosceptic MPs to back the deal Ms May negotiated with the EU or brought about a reversal of the 2016 referendum.
“The chances of a no-deal remain remote but at the same time a satisfactory outcome anytime soon also seems highly unlikely and this is containing the pound in a fairly narrow trading range,” said David Cheetham at XTB.
Global Wealth Management said it foresees a long extension to Brexit because it doubted Ms May’s attempt to build a cross-party consensus would succeed and expected the pound to remain volatile.
Chris Beauchamp at broker IG said the UK will get its extension but not the one Ms May favours. “Instead European elections now seem to be a certainty, throwing yet another spanner into the Brexit works.
Recent general election polling shows the two parties neck and neck in the UK, and it is more a question of which side loses more support first, and whether that is of the leave or remain kind,” he said.
- Additional reporting Reuters