LONDON (Reuters) - Sterling held near a one-year low against the euro on Wednesday following days of aggressive selling ahead of a rare mid-recess speech by Brexit Minister Dominic Raab, with some large derivatives positions checking any prospect of gains.
The pound fell to its lowest level since Sept. 11, 2017 against the euro on Tuesday after British Prime Minister Theresa May played down the consequences of leaving the European Union next year without securing a deal with the bloc.
May’s comments - seen as undermining Finance Minister Philip Hammond’s warnings about the economic damage from a “no-deal” Brexit - piled pressure on the pound and pushed it sharply lower against both the dollar and the euro.
Her comments came as France’s Prime Minister Edouard Philippe asked his ministers on Monday to prepare contingency measures in case of a no-deal Brexit.
“Though we are seeing a pick up in the frequency of Brexit headlines, we are wary of selling the pound aggressively at these levels as market positioning is very light,” ING currency strategist Viraj Patel said, referring to a lack of direction in the futures market.
On Wednesday, sterling strengthened slightly to 90.62 pence against the euro after falling to a near one-year low of 90.98 pence the previous session. Against the dollar, sterling was broadly flat at $1.2883.
Raab is due to speak at 1300 GMT at an EU committee in the Britain’s upper house of parliament.
In currency derivatives markets, traders have slowly started to bet on sterling weakening against the euro, and large option expiries are building up around the 91-pence level.
With both senior European and British government officials refusing to budge from their respective negotiating positions, the prospect of a no-deal Brexit is becoming increasingly likely in the eyes of investors.
Foreign exchange analysts have forecast that the pound will weaken to $1.20 in the event of a no-deal Brexit, a Reuters poll found this month.
“The rhetoric from the UK government since going in to recess has become more accepting of a no-deal scenario and is a big part behind sterling’s weakness,” said John Marley, a senior currency consultant at FX risk management specialist, SmartCurrencyBusiness.
Reporting by Saikat Chatterjee; Editing by Louise Ireland