Sterling rises as May gets cabinet support on Brexit deal

LONDON/NEW YORK (Reuters) - Sterling rose in volatile trading on Wednesday after UK Prime Minister Theresa May received the backing of her cabinet for a draft Brexit deal, but she will now need to get the parliament to approve the agreement.

May hailed the European Union “divorce” deal, but she faces open hostility from some of her own party members in parliament.

“It will be a battle through the parliament,” said Chris Gaffney, president of world markets at TIAA Bank in St. Louis, Missouri.

Moody’s Investors Service said such an agreement is positive, but it faces significant hurdles.

It is unclear whether May has enough votes in parliament to approve the Brexit draft accord that includes water-downed access of Britain to the economic bloc’s financial markets.

The financial services sector is the biggest source of Britain’s export and tax revenues.

The pound fell briefly fell on a BBC report that angry Tory Brexit hardliners might call for a no confidence vote on May’s leadership on Thursday.

Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger

The sterling rebounded after May announced the support of her cabinet after a five-hour meeting.

“The collective decision of cabinet was that the government should agree the draft withdrawal agreement and the outline political declaration,” she said.

The EU’s Brexit negotiator Michel Barnier said the draft agreement is critical toward finishing the negotiations.

Sterling has risen more than 1 percent from the 2018 lows of below $1.27 in August as expectations of a Brexit deal have grown in recent weeks before Britain officially leaves the European Union at the end of March 2019.

Some, such as Stephen Jen, co-chief investment officer of Eurizon SLJ Capital, a London-based hedge fund, expect the pound to rise to as much as $1.55 if a cliff-edged Brexit is avoided.

In late U.S. trading, the pound was up 0.17 percent at $1.2991, seesawing in a wide $1.2885 to $1.3020 range, reflecting the growing nervousness among market participants.

Sterling/dollar implied overnight volatility jumped to 23 percent on Wednesday, its highest since Britain’s general election in June 2017.

Against the pound, the euro was little changed at 87.055 pence, holding above a near 6-1/2-month low of 86.56 pence on Tuesday.

Worries about the Italian budget also weighed on the bloc’s single currency.

GRAPHIC: Euro, sterling since Brexit referendum -

Additional reporting by Richard Leong in NEW YORK; editing by Angus MacSwan and G Crosse