Sterling fell sharply on Tuesday after British legislators voted against a bid in parliament to prevent a potentially disorderly no-deal Brexit.
With two months left until Britain is due by law to leave the European Union, parliament was trying to find a way forward by voting on different amendments, though none of the first five that were voted on was approved.
Growing expectations that Britain can avoid a no-deal Brexit have fuelled a 3 per cent rally in the pound this month against the dollar and the euro.
But sterling tumbled after legislators voted down a proposal to wrest control of the negotiations from prime minister Theresa May if she fails to secure concessions from Brussels.
Sterling fell 0.7 per cent to the day’s low of $1.3088 . It also dropped to the day’s low against the euro, falling 0.8 per cent to 87.33 pence.
The pound remains well below a 3½ month high of $1.3218 and a spike in volatility in derivatives market reflected nervousness about the likely outcome of the votes.
Cliff-edge event
"The fact we are now staring at the Brexit deadline of March 29th once again as a cliff-edge event has disappointed many in the market who were betting on a sterling recovery," said WorldFirst head of FX strategy Jeremy Cook.
He expected further falls in sterling following the vote in favour of an amendment from 1922 committee chairman Graham Brady which calls for the Irish backstop arrangement envisaged by May's Brexit divorce deal to be removed and replaced with "alternative arrangements".
The parliament voted 317-301 to back the amendment.
Brussels has repeatedly said it would not reopen the “Irish backstop”, setting up a clash with only two months until the UK’s scheduled departure.
The backstop is an insurance policy designed to avoid customs checks between the Republic and Northern Ireland after Brexit. Many in May’s party oppose it, fearing it could trap Britain in a permanent customs union.
MPs also voted 318-310 in favour of a non-biding amendment from Conservative MP Dame Caroline Spelman that rejects a no-deal Brexit but without specifying anything else. – Reuters/The Financial Times Limited 2019/Bloomberg
