January 10, 2019 / 9:26 AM / a month ago

Sterling dips as possibility of UK general election rises

* Labour says will demand election if May loses Jan 15 vote

* Lawmakers hand UK PM May early defeats this week

* Sterling volume drops on “no-deal” Brexit relief

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

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

By Abhinav Ramnarayan

LONDON, Jan 10 (Reuters) - Sterling hit a one-week low against the euro and dipped against the dollar on Thursday after British Prime Minister Theresa May lost two Brexit-related votes in two days, sparking investor worries that a general election may be on the cards.

Britain’s main opposition Labour Party will demand a general election if May loses a vote in parliament over her Brexit plans next week, its leader Jeremy Corbyn will say on Thursday.

The British currency was hit by the possibility of a Corbyn government implementing high spending policies that could impact British finances.

But expectations for sterling volatility fell as Wednesday’s vote also appeared to reduce the chance of a no-deal Brexit.

British lawmakers have demanded that government come up with a plan-B within days if May loses the vote on her Brexit deal on Jan. 15.

“[Wednesday’s] vote... undermines the prime minister’s authority and brings up the possibility of a general election. She has lost two votes this week alone now,” said Societe Generale FX strategist Alvin Tan.

Sterling hit a one-week low against the euro, dropping 0.22 percent to 90.45 pence per euro and also dipped 0.20 percent against the dollar to $1.276.

The risk of sterling falling against the dollar is deemed the lowest in over six months, according to cable option pricing.

Expectations for sterling price swings have also fallen in the last few sessions, dropping from recent highs, with investors now expecting less implied volatility over a one-month period. (Reporting by Abhinav Ramnarayan Editing by Keith Weir)

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