December 4, 2018 / 9:33 AM / 8 days ago

Sterling jumps after EU court adviser says Britain can end Brexit unilaterally

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, Dec 4 (Reuters) - Sterling jumped on Tuesday after the European Court of Justice’s advocate general said Britain has the right to unilaterally withdraw its notice that it is leaving the European Union.

The advocate general’s advice is non-binding but the prospect of a route out of the Brexit process cheered the market, even as Prime Minister Theresa May pressed ahead with plans for a parliamentary debate on her proposed divorce deal with the EU.

The pound spiked to a day’s high of $1.2803 and traded up 0.6 percent on the day versus a broadly weaker dollar. Against the euro it rose 0.4 percent to a day’s high of 88.9 pence.

May’s attempts to win over critics in her Conservative party and opposition groups in order to get her deal approved next week are seen by investors as increasingly fraught.

“The parliamentary debate should reiterate the divisions between and within the political parties, pointing to a low likelihood of the Brexit deal being voted through in Parliament next week,” said Petr Krpata, an currency strategist at ING.

He said sterling would remain under pressure with the currency converging on 90 pence against the euro.

Opposition Labour finance spokesman John McDonnell said last week a second Brexit referendum “might be an option we seize upon”.

The comments raised expectations the Labour party could back putting Brexit to a second vote though it is unclear what impact the prospect of a second referendum would have on sterling.

“We doubt this option will impact the pound. A lot of dire developments would probably have to take place first before a second referendum happens,” said analysts at MUFG.

Recent positioning data suggests hedge funds have started to unwind large short positions on sterling as hopes grow that Britain may manage to negotiate an orderly Brexit.

But growing domestic opposition to May’s Brexit arrangement has continued to pressure sterling, pulling it down 3 percent from a Nov. 7 high of $1.3176.

“The outcome being priced into GBP right now is the idea of a successful second vote in parliament on the negotiated deal and an orderly exit on March 29,” said Simon Derrick, chief currency strategist at BNY Mellon. (Reporting by Tom Finn Editing by Andrew Heavens)

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