November 15, 2018 / 8:59 AM / 6 months ago

Sterling slips as PM May faces mounting opposition

* Graphic: World FX rates in 2018

* Graphic: Trade-weighted sterling since Brexit vote

LONDON, Nov 15 (Reuters) - Sterling slipped on Thursday after a volatile overnight session as UK Prime Minister Theresa May faces an uphill task to get parliament to approve her draft European Union divorce deal.

The British pound ended higher on Wednesday after May said she had won over her divided cabinet following a five-hour meeting, which includes some senior Brexiteers.

But in a sign of just how hard the vote in the British parliament might be, Shailesh Vara, who backed EU membership in the 2016 referendum, quit on Thursday as a junior minister in May’s government.

Those concerns were reflected in the foreign exchange derivatives markets where three and six-month gauges of expected volatility in the British currency remained firm while extreme short-dated volatility indicators edged lower.

British government bonds were also a beneficiary of the greater uncertainty on the progress of the Brexit deal with gilt yields falling four to five basis points across the board.

“PM May is not out of the woods yet and the price action suggests FX markets are cautious about the outcome,” said John Marley at FX risk management specialist, Smart Currency Business.

In the currency markets, the pound edged 0.1 percent lower at $1.2961.

While the currency has been extremely volatile this week — realised price swings this week alone has averaged about 12 percent annualised on a daily basis, twice that of end October, prices have stayed within broad ranges.

Though a Brexit endgame is still some way away and risks have intensified, Goldman Sachs strategists said in an overnight note their base case scenario is that the Parliament will ratify a withdrawal deal by then.

Against the euro, the British pound fell half a percent to 87.56 pence. (Reporting by Saikat Chatterjee; Additional reporting by Abhinav Ramnarayan; Editing by William Maclean)

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