Sterling consolidated gains on Wednesday, a day after posting its biggest daily rise in nearly two months, as investors trimmed some bearish bets before a parliamentary debate over the government's European Union repeal bill.
The pound was flat at $1.3027 and slightly lower against the euro at 91.53 pence.
“Sterling remains very headline-sensitive to politics but the protracted weakness in the currency may start to play a bigger role in central bank policy discussions,” said Viraj Patel, an FX strategist at ING in London.
Prime Minister Theresa May warned lawmakers over the weekend that Britain could be faced with a Brexit "cliff edge" if they failed to back the repeal bill, which will sever Britain's ties with the bloc.
Finance minister Philip Hammond urged lawmakers on Monday not to seek to delay the legislation, which will copy existing EU legislation into domestic law, following reports that the opposition Labour Party is planning to propose several changes to the bill.
With short positions on sterling already near four-month highs, investors chose to unwind some positions as a successful passage of the bill through parliament could lift sterling sharply.
Though BOE policymaker Michael Saunders repeated the standard line last week that there was no particular level of the pound that worried the central bank, analysts said protracted weakness in sterling could push up inflation. It is already running above the BoE’s target of 2 per cent.
The BoE is scheduled to meet next week and interest rate markets are expecting less than one rate increase before the end of 2018.
-Reuters
