March 26, 2019 / 9:37 AM / 4 months ago

Pound penned in below $1.32 by risk of snap election, no-deal Brexit

* World FX rates in 2019 tmsnrt.rs/2egbfVh

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

LONDON, March 26 (Reuters) - Sterling slipped on Tuesday after the British parliament’s moved to wrest control of the Brexit process for a day, raising expectations that lawmakers can end an impasse on Britain’s European Union exit, but also the chances of a snap election. Parliament will now vote on Wednesday on a range of Brexit options, giving parliament a chance to indicate whether it can agree on a deal with closer ties to Brussels - and then try to push the government in that direction.

However, Prime Minister Theresa May has stressed she will not implement any proposal counter to her pledge to a clean break with the EU. That means she could call an election, a prospect backed also by the opposition Labour.

If Britain cannot outline a plan by April 12, it must leave the European Union by May 22 with or without a deal, according to the terms of an extension granted recently by the bloc.

The pound traded at $1.3180, down 0.14 percent on the day, having risen to $1.3224 after Monday’s parliament vote. Against the euro it was flat at 85.80 pence.

“The rising risk of a general election and a no-deal Brexit remain potential banana skins for the pound in the near-term. We are confident that pound volatility should remain elevated,” MUFG analysts told clients.

Sterling implied volatility — a gauge of expected swings in the currency — eased a touch however, though the one-month contract, encompassing the crucial April 12 date is close to 3-1/2 month highs hit on Monday

Jitters are also reflected in UK government bonds where 10-year yields remain well below one percent, the lowest since Sept 2017. (Reporting by Sujata Rao; Editing by Alexander Smith)

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