LONDON (Reuters) - Sterling slumped against the dollar and the euro on Tuesday as doubts grew about whether British Prime Minister Theresa May can get a Brexit agreement through a divided parliament.
May began a tour of the United Kingdom to drum up support for her Brexit divorce deal with the European Union but her deputy said parliament might reject it if asked to vote on it now.
May’s attempts to win over critics in her Conservative and opposition parties in order to get her deal approved are seen by investors as increasingly fraught.
“The failure of the pound to rally on recent positive developments suggest the market is pricing in that the deal won’t pass the first time in parliament,” said Lee Hardman, a currency analyst at MUFG.
“The pound will likely trade with increased volatility during the next two weeks.”
Against the dollar, the British currency fell more than half a percent to $1.2730, its lowest level in nearly two weeks. It also fell a third of a percent against a weak euro to 88.87 pence.
Sterling’s losses were compounded by comments from U.S. President Donald Trump that a Brexit deal could hamper trade ties with the United States.
“The comments from Trump and more uncertainty regarding the future trade agreements of the UK following Brexit next year are weighing on the short-term outlook for the pound,” said Sebastian Fellechner, an analyst at DZ Bank.
The pound on Tuesday broke through a key support level of around $1.2770, which it had managed to stay above in the last few trading sessions.
Positioning also offered little respite for the British currency after a large chunk of short positions were whittled away in recent weeks, leaving the pound more vulnerable to losses.
Reporting by Tom Finn, editing by Ed Osmond