LONDON (Reuters) - Sterling held near the day’s lows on Friday and is poised for a second consecutive week of losses as investors moved to the sidelines before a Sunday summit where European Union and British policymakers are expected to endorse a Brexit deal.
Four months before Britain leaves the EU, the legal divorce treaty and an accompanying political declaration on future ties are due to be rubber-stamped by British Prime Minister Theresa May and the leaders of the other 27 EU countries.
Although Spain’s eleventh-hour objections over Gibraltar have prevented EU officials from clearing the last hurdle before the summit on Friday, investors say the bigger concern is whether opposition from British MPs would scuttle the deal at a parliamentary vote in December.
“While the EU appears practically certain to accept it, the same cannot be said for UK lawmakers, as nearly every faction of Parliament – including Labour, Tory Brexiteers, pro-EU moderates, and the DUP – has threatened to vote it down,” said Marios Hadjikyriacos, an analyst at broking firm XM.Com.
Encouraging investors to dial down risky positions at the end of a turbulent week for markets was a rebound in the dollar amid a slide in oil prices with various benchmarks down between 2 to 5 percent. [FRX/][O/R]
Against a broadly resurgent dollar, the British currency fell 0.5 percent to $1.2802 while it was a tad firmer against the euro at 88.50 pence.
Spain has asked for changes to the withdrawal treaty and the country’s Prime Minister Pedro Sanchez said he will veto the draft deal on Britain’s exit from the EU if no changes are made.
Though the British currency is trading at the lower end of recent ranges and remains one of the most undervalued currencies on a trade-weighted basis, investors are wary of buying the pound at these levels on political concerns.
Despite a recent drop in short sterling positions, overall bets remain large at $3.8 billion.
For a graphic on Sterling positions and valuations, see - tmsnrt.rs/2R8EKHR
Reporting by Saikat Chatterjee; editing by Jason Neely, Toby Davis and Kirsten Donovan