March 5, 2019 / 9:15 AM / 10 months ago

Sterling struggles as Brexit deadlock drags on

LONDON (Reuters) - The pound was stuck near a one-week low on Wednesday as a deadlock over Brexit fuelled concern that a vote on Prime Minister Theresa May’s proposed deal for Britain’s EU departure could be delayed.

FILE PHOTO: British Pound Sterling banknotes are seen in a box at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger

Talks with European Union negotiators aimed at winning concessions for Britain on Brexit have made no headway and no swift solution is in sight, EU officials said on Wednesday.

Britain is due to leave the EU in 23 days, and the pound has dropped this week as doubts swirl over how, or possibly even if, Britain’s exit will take place.

Most economists in a Reuters poll thought Brexit would be delayed by a few months and the two sides would eventually agree a free-trade deal.

May has offered lawmakers a chance to seek to delay Brexit if parliament rejects her deal in a vote she has promised to hold by March 12.

“Even if a no-deal Brexit is taken off the agenda next week, the uncertainty of what would happen in case of a postponement remains. Pound traders cannot ignore this fact ... things remain tense for sterling,” said Esther Maria Reichelt, an FX strategist at Commerzbank in Frankfurt.

At 1650 GMT the pound was down 0.2 percent at $1.3149, close to Tuesday’s one-week low of $1.3097. It was also struggling against the euro, down 0.3 percent at 86.08 pence.

Traders are expecting big swings in the currency around March 12, according to a sharp rise in one-week implied volatility.

One-week implied volatility measures demand for options to hedge against big currency swings. A higher percentage reflects greater expectations of currency movements over the next seven days.

There was little obvious reaction in the pound to reports that Britain is considering dropping some tariffs in the event of a no-deal Brexit, “probably down to the fact that markets still consider it a remote possibility at this stage,” said CMC Markets’ Michael Hewson.

One of the best-performing major currencies so far in 2019, sterling rose last week as investors bet a no-deal Brexit would be avoided and Britain’s EU exit delayed.

One week GBP vol spikes -

Additional reporting by Sujata Rao, editing by Larry King and John Stonestreet

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