November 26, 2018 / 9:20 AM / 20 days ago

Pound strengthens on EU Brexit deal approval; UK vote in focus

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, Nov 26 (Reuters) - The pound rose on Monday after the European Union sealed a Brexit deal but the currency’s gains were curbed by doubts about Prime Minister Theresa May getting the agreement through a divided British parliament.

With European leaders finally endorsing May’s plan for future ties between Britain and the bloc, traders of sterling are focused on a parliamentary vote on the deal likely to take place in mid December.

For now, the odds look stacked against May with criticism of the agreement approved in Brussels on Sunday from all sides, including from the Northern Irish party propping up her minority government.

“The failure of the pound to rally on recent positive developments suggest the market is pricing in that the deal won’t pass the first time in parliament,” said Lee Hardman, a currency analyst at MUFG.

“During the next two weeks the pound will likely trade with increased volatility,” he added.

Brexit negotiations and political uncertainty in Britain remain the key drivers for the pound, and many analysts are cautious about its prospects.

The pound traded up 0.2 percent versus the dollar at $1.2833 at 0900 GMT but slipped 0.2 percent against the euro at 88.6 pence.

Positioning data suggests that some hedge funds started to unwind large short positions on sterling last week as hopes grew that the EU would back May’s deal.

Net short positions on the pound saw their fourth biggest weekly decline in over a year, according to CFTC data.

But growing domestic opposition to May’s Brexit arrangement has continued to pressure sterling, pulling it down 2.5 percent from a Nov. 7 high of $1.3176.

May will hold an emergency cabinet meeting on Monday to brief ministers on her strategy, and then begin a two week campaign to sell her plan directly to the British electorate. (Reporting by Tom Finn, Editing by William Maclean)

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