LONDON (Reuters) - Sterling rebounded off earlier lows on Tuesday after Bank of England Governor Mark Carney gave his backing to a Brexit deal struck by prime minister Theresa May though gains were tiny in a market wary of further Brexit deal developments.
Speaking to lawmakers, Carney and other BoE officials speaking alongside him repeated their warning to investors not to assume that the central bank would respond to a no-deal shock by cutting interest rates, as it did after the Brexit referendum in 2016.
“Carney’s comments did not deviate much from what they have said earlier so that helped sentiment a bit but concerns remain high,” said Fritz Louw, a currency analyst at MUFG in London.
The pound rebounded 0.1 percent to $1.2856, and 0.3 percent above a low of $1.2821. It hit a two-week low of $1.2725 reached last week. Its weakness was less than some of its peers — the euro fell 0.4 percent against the Swiss franc. [FRX/]
The Northern Irish Democratic Unionist Party, which props up May’s government, has said she ought to demand a better deal from the European Union on the terms of Britain’s departure.
Growing opposition to May’s draft arrangement has hit sterling hard in recent days, pulling it down nearly 3 percent from a Nov. 7 high of $1.3176.
Derivative markets painted a broad picture of caution with short-dated sterling risk reversals at their lowest levels since July 2016, indicating investors were still expecting more pound weakness.
Against the euro, the pound was broadly flat at 89.06 pence.
For a graphic on Sterling volatility, see - tmsnrt.rs/2QY4Tc6
Reporting by Saikat Chatterjee; Editing by Richard Balmforth