LONDON (Reuters) - Sterling fell on Wednesday as investors locked in profits after its biggest one-day surge since at least 1998 in the previous session when Prime Minister Theresa May outlined Britain’s hopes for its exit from the European Union.
Sterling sliced 0.9 percent off the 3-percent gain it had made against the dollar on Tuesday, leaving it back at $1.2310 after a brief afternoon dip below $1.23.
Having seen it top out at $1.2416 the previous day after dipping as low as $1.1983 on Monday, traders said the retreat was a natural reaction.
“It was the biggest move since Adam was a lad yesterday so it was natural that there was a correction,” ETX Capital’s chief FX Broker Richard Wiltshire said about the pound’s dip.
“There is still a lot of nervousness regarding sterling and it is going to be a bit of a rocky road so we are not out the woods yet.”
Delivering another major piece of Brexit news, Britain’s top court said it would give its long-awaited ruling next Tuesday on whether May will have to get full parliamentary assent to start the EU exit process.
May’s speech had confirmed that she planned to take Britain out of the EU’s single market, but cheered currency markets by including promises to let parliament have a say on its Brexit deal and give firms time to adapt to the new set-up.
Asset manager GAM’s group head of multi-asset portfolios, Larry Hatheway, said the message had been well-received because it sought solutions rather than a confrontational approach. But there remains huge uncertainty over where the talks will lead.
“My sense is that we are going to challenge the $1.20 level before too long again, and 1.15 is not out of the question, but there won’t be the kind of weakness (for the pound) that we saw in the second half of last year,” Hatheway said.
European Commission President Jean-Claude Juncker said he had told May that EU negotiators were “not in a hostile mood” toward Britain but that Brexit talks would be “very, very, very” difficult. Germany’s Angela Merkel promised a united EU front in what will be “very intensive” negotiations.
In line with the day’s broader pullback, sterling dipped 0.6 percent against the euro to leave it at 86.80 pence per euro. It had hit 86.27 pence on Tuesday after weakening to as little as 88.53 pence on Monday.
It fell against the yen and Swiss Franc also and gauges of expected sterling volatility nudged back up. One-week options were at 10 percent though that was well below the 17.5 percent they hit at the start of the week.
The slip back in sterling also came amid proof of the effect of the looming split. HSBC, the UK and Europe’s biggest bank, said it will move staff responsible for generating about a fifth of its UK-based trading revenue to Paris.
“We will move in about two years time when Brexit becomes effective,” Chief Executive Stuart Gulliver said.
UK jobs market figures also showed the number of people in work in Britain fell for a second time in a row in the three months to November, the latest suggestion that the Brexit vote may be making employers nervous about hiring.
Editing by Louise Ireland
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