LONDON (Reuters) - Sterling slipped from a two-month high against the dollar on Tuesday after the British government asked parliament to respect its timetable for leaving the European Union, dampening investors’ hopes that Brexit might be delayed.
The pound had rallied as high as $1.2775 in early European trading as markets bet the government would lose a court battle to begin the formal process for leaving the EU without parliamentary approval.
But by 1730 GMT sterling was trading more than a cent below that high, down half a percent on the day at $1.2666.
The government has accepted a call from the opposition Labour Party to set out its departure plan before formal talks begin, but says parliament should respect the result of the June referendum and back Prime Minister Theresa May’s intention to invoke Article 50 by the end of March next year.
Assuming London keeps a promise to formally launch the process of leaving the EU by then, the European Union’s chief negotiator on Tuesday set a target of agreeing a Brexit deal with Britain by October 2018.
“All of this noise doesn’t make markets constructive going into 2017, it just warrants caution on chasing sterling upside,” said ING currency strategist Viraj Patel. “There has been a massive rally in the past couple of weeks and that is probably topping out.”
“(Today’s developments) seem to suggest that the government will manage to stay on track for its preferred timetable. There is a bit of that (in sterling’s fall this afternoon) but it has also struggled to break the 100-day moving average.”
Sterling has climbed over 5 percent against the dollar since early October, when it was trading around $1.20 on expectations for a hard Brexit in which, tight controls on immigration are prioritised over European single market access.
That view was driven in large part by comments from May and other senior members of the ruling Conservative party at its annual conference.
The suggestion last week by Brexit minister David Davis that the government may be willing to pay into the EU budget in return for access to the single market helped the pound hit five-month highs of 83.05 pence against the euro on Monday, with sterling also boosted by stronger-than-expected data from Britain’s dominant services sector.
It was off those highs on Tuesday at 84.625 pence, slightly down on the day.
The government has appealed to the Supreme Court to overturn a ruling by another court last month that threatens to derail its Brexit plans. The High Court ruled in November that May could not trigger Article 50 without parliamentary backing, a ruling that boosted sterling.
Investors believe that greater parliamentary involvement would reduce the chances of a hard Brexit, which they fear would weigh on the economy and push down the pound.
Additional reporting by Patrick Graham; editing by John Stonestreet