LONDON (Reuters) - Sterling rebounded from earlier lows on Wednesday as hedge funds covered some of their short bets after Prime Minister Boris Johnson offered only vague details on his Brexit proposals to the European Union.
The pound had earlier weakened 0.5% to $1.2227 as traders awaited details of what he has billed as his final Brexit offer.
But Johnson’s closing speech to the Conservative party’s annual conference offered little clarity on what exactly Britain would propose to the EU at a summit this month and only reiterated that if Brussels did not engage with the plan, Britain would leave the EU on Oct. 31.
“We learned nothing new,” said Jordan Rochester, a strategist at Nomura based in London.
“But hope is a powerful thing, so for the time being Johnson may make all the noise in the world but he doesn’t have the majority in parliament and no ability to have a no-deal or an election and the power is still in the hands of parliament.”
After the speech, the pound rose 0.5% to trade flat at $1.2311. It had hit a four-week low of $1.2205 in the previous session.
Versus the euro EURGBP=D3, the pound was a shade weaker at 88.94 pence.
Many EU diplomats fear Britain is heading towards leaving the EU without an agreed deal, or faces another delay, as they say Johnson’s proposals are not enough to get one by Oct. 31.
Johnson said further delay was “pointless and expensive”.
With Brexit just a few weeks away, expected price swings on the pound have edged higher in recent days.
Implied volatility on the pound for one-month maturities GBP1MO= has nearly doubled over the last three weeks to more than 11 vol as traders anticipate more volatility for the pound.
By comparison, implied volatility for the euro EUR1MO= and the yen JPY1MO= for similar maturities held around 6 vol.
The pound had jumped above $1.23 on Tuesday on the back of reports the EU was open to considering a time-limited Irish border backstop - a major sticking points in Brexit talks. The currency then gave up most of the gains when the EU denied this.
“These days anything below a 1 percent move in the pound is flow-related and nothing else,” Rochester said.
For a graphic on One-month pound volatility close to recent highs:
The British parliament has put roadblocks in Johnson’s way - passing a law that requires him to request a delay if he fails to secure an acceptable deal at an EU summit starting on Oct. 17.
The law reinforced analysts’ belief that Brexit will be delayed for a third time. JP Morgan raised on Tuesday the probability it attaches to a Brexit extension to 85% from 60%. It also saw the probability of a no-deal Brexit at 10%, down from 25%.
Reporting by Olga Cotaga and Sujata Rao; Writing by Saikat Chatterjee; Editing by Mark Potter and Alexander Smith