The pound hovered against the dollar and the euro as MPs prepare for another crunch vote in parliament on the UK government’s new Brexit deal on Tuesday.
UK prime minister Boris Johnson is launching another last-ditch bid to push through Brexit legislation before the 31 October deadline.
Ministers say they have enough support to get the withdrawal agreement bill through the Commons, but face a backlash from MPs given just hours to read hundreds of pages of text last night and just three days to debate the bill.
Sterling remains near five-month highs against the dollar, but dipped slightly in early trading on Tuesday, sinking 0.2% to around around $1.29 (GBPUSD=X) and around €1.16 (GBPEUR=X) at around 8.40am in London.
“The pound has continued to shrug off concerns that the latest deal between the UK and EU may still get derailed after the Speaker of the House knocked back the government’s request to hold a meaningful vote yesterday, after pulling the vote on Saturday in response to the Letwin amendment,” said Michael Hewson, chief market analyst at CMC Markets UK.
He said MPs could seek to amend the legislation ahead of the vote scheduled for tonight, such as demanding Britain stay closer to the EU in a customs union or forcing a likely extension to the transition period currently due to end in December 2020.
Hewson said MPs’ willingness to alter the bill reflected their confidence that the EU would grant an extension, avoiding a stark choice between a Brexit deal and crashing out without one.
He said an extension would not be lengthy without good reason, such as a general election, and may only be granted as late as the day of Britain’s scheduled departure to ramp up pressure on MPs to back a deal.
But Hewson added: “The prospect of an extension has continued to support the pound which made another 5-month high against the US dollar yesterday above the 1.30 level.
“For now, this appears to be acting as a short-term top, with markets reluctant to drive the currency too much higher given that there could be many more political twists and turns before any deal gets across the line.”
AIB analysts said in a note: “Despite the ongoing uncertainty, sterling has been holding a firmer tone over the past 24 hours. There is a growing view that the vote will be passed. This could see further modest sterling gains.”
“However, there will still be plenty of hurdles before a Brexit deal gets fully through the UK parliament,” they added, noting reports Johnson could make fresh demands for an election if MPs’ amendments succeed.