May 15, 2019 / 8:42 AM / 9 days ago

Sterling hits three-month low as Brexit deadlock saps support for PM May

LONDON (Reuters) - The pound fell sharply on Wednesday on growing expectations that Prime Minister Theresa May will again fail to get her Brexit deal approved and could soon face a leadership challenge.

FILE PHOTO: British five pound banknotes are seen in this picture illustration taken November 14, 2017. REUTERS/ Benoit Tessier

Sterling has weakened more than 1% this month as deadlocked cross-party talks expose deep political divisions over how, when and even if Brexit should take place.

May plans to put forward her thrice-rejected Brexit deal in the week beginning June 3, to try to secure an agreement before lawmakers go on summer holiday.

But Britain’s opposition Labour Party said it would not ratify the deal if a compromise agreement is not reached with the government.

Those comments fuelled speculation that May will soon be ousted and pressured the pound.

The currency fell more than 0.5% to $1.2827, its lowest since Feb 15, and dropped around 0.4% versus the euro to 87.35 pence.

“Failure to pass the deal [in June] could well see May finally step down, opening the door for a more eurosceptic prime minister and a possible hard Brexit,” said Petr Krpata, an FX strategist at ING in London.

For a graphic on Sterling stumbles to 3-month low, see - tmsnrt.rs/2WG1sd0

Sterling has fallen for eight consecutive days against the dollar despite mostly solid economic data in Britain in recent months.

A worry for investors is that months of inventory stockpiling by British companies before Brexit will show up this quarter.

British employment data on Tuesday showed wage growth in the quarter ending March was lower than expected, signalling the possible start of a turbulent period for the broader economy.

Volatility in currency markets is historically low and in recent weeks investors have curtailed their bets on big swings in the pound.

(This story has been refilled to correct sterling lows to $1.2827 and 87.35 pence versus the euro in paragraph 5)

Reporting by Tom Finn; Editing by Larry King, Toby Chopra and Alexander Smith

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