March 11, 2019 / 9:22 AM / 10 days ago

Sterling surges on reports May may be nearing Brexit deal before vote

LONDON (Reuters) - Sterling rose sharply on Monday in volatile trade after media reports said that Prime Minister Theresa May was preparing to offer an amended version of her Brexit deal to parliament in a key vote on Tuesday.

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/File Photo

Senior pro-Brexit members of May’s Conservative Party believe she has “some kind of” Brexit deal to put to parliament, the BBC’s political editor, Laura Kuenssberg, said.

The pound leaped half a percent and hit the day’s high of $1.3150 as some investors strengthened bets that May could secure a divorce deal with the European Union before Britain’s scheduled March 29 departure from the bloc.

“We are starting to see some signs of movement from London and Brussels towards a Brexit deal and that is helping sentiment,” said WorldFirst head of FX strategy Jeremy Cook.

May will travel to Strasbourg on Monday for last-ditch talks with European Commission President Jean-Claude Juncker.

Investors are bracing for parliamentary votes on May’s Brexit deal that could decide on what terms - if at all - Britain leaves the EU in less than three weeks.

No breakthrough emerged from weekend talks between the British government and the EU over May’s wish to amend parts of the divorce agreement related to the border between EU member state Ireland and the British province of Northern Ireland.

As a result, in a vote on Tuesday evening lawmakers were expected to reject - for a second time - the withdrawal agreement May negotiated with Brussels last year.

If that happens, she will face another vote on Wednesday on whether parliament wants to leave the EU without a deal, with a majority expected to refuse the “no-deal” scenario as economically disruptive.

A third vote would then be held on Thursday on whether Britain should request from the EU a “limited” extension of the March 29 Brexit date.

Analysts said sterling’s strength on Monday - which follows eight consecutive days of losses - was also due to increased bets on Brexit being delayed and a no-deal or economically damaging “hard” Brexit being averted.

“A delay to Brexit would be modestly positive for sterling, reflecting the reduction of the risk of a hard Brexit,” said Kallum Pickering, an economist at Berenberg.

“However, it would not completely eliminate the hard Brexit risk which could still come at the end of a delay or as a result of a second referendum,” he added.

At 1710 GMT sterling was up 1 percent at $1.3150. It was also up 0.9 percent against the euro at 85.53 pence.

Earlier in the session, the pound fell after a Sun Newspaper report said May would change Tuesday’s key vote on her Brexit deal to a less decisive provisional vote, raising the prospect of more uncertainty for the struggling currency.

May’s spokesman then said the vote would go ahead as planned.

The pound has weakened in recent weeks as doubts swirl over how, or possibly even if, Britain’s exit will take place.

Most economists expect Brexit to be delayed by a few months and the two sides to eventually agree a free-trade deal, according to a Reuters poll.

Traders are expecting big swings in the currency around this week’s votes, 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.

Sterling volatility surges - tmsnrt.rs/2Cey8SV

Additional reporting by Sujata Rao; Editing by Mark Heinrich

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