LONDON (Reuters) - The pound fell more than half a percent on Thursday, snapping a three-day rising streak, as concerns rose that Britain may be headed for a protracted Brexit delay.
Britain could ask the European Union for a long Brexit delay next week if crisis talks between Prime Minister Theresa May’s government and the opposition Labour Party fail to find a way out of the impasse over the divorce from the European Union.
Further complicating an already murky outlook for the pound was the passage of a bill through the House of Commons on Wednesday that would force May to seek a Brexit delay to prevent a no-deal departure on April 12.
“By potentially taking the date of extension out of May’s negotiating hand, it adds an extra layer of complexity to the ongoing Brexit negotiations as she will have to secure approval from both EU officials and British lawmakers,” said Thu Lan Nguyen, a currencies analyst at Commerzbank.
The pound slipped more than half a percent to the day’s low at $1.3077. Against the euro, it weakened half a percent at 85.78 pence.
The upper house of Britain’s parliament started debating legislation to force Prime Minister Theresa May to seek a Brexit delay to prevent a potentially disorderly departure on April 12 without a deal, after the lower house of parliament approved the bill by a single vote.
May also began talks with opposition lawmakers to forge a cross-party consensus to break the Brexit deadlock, but Labour leader Jeremy Corbyn said she had not moved far enough in a first round of crisis talks.
UBS Global Wealth Management said it foresees a long extension to Article 50 as it expects May’s attempt to build a cross-party consensus to be unlikely to succeed and expected the pound to remain volatile.
“Until some clarity emerges, UBS does not advocate taking directional views in sterling and advises investors to hedge downside risk,” UBS said.
While political developments this week indicated lawmakers are increasingly reluctant to go for a hard Brexit, the lack of clarity on an alternative plan has weighed on the pound.
This week’s developments have also pushed up expected gauges of volatility for the pound, with one-month implied gauges staying elevated vis-a-vis the euro.
“Some of the negativity might just be the market pricing in some more risk that the terms the EU set for any extension could be very tough to stomach for the UK,” said Fritz Louw, a currency analyst at MUFG based in London.
Reporting by Saikat Chatterjee; Editing by Jon Boyle, William Maclean, Kirsten Donovan