LONDON (Reuters) - The pound rallied against the euro and the dollar on Tuesday after Prime Minister Theresa May said Britain needed a further extension of Article 50 to ensure it leaves the European Union with a deal in a timely manner.
“The market reflex is to buy the pound as the extension means good news for now but it also depends of how long the extension is going to be,” said Neil Jones, head of hedge fund sales at Mizuho based in London.
The pound rallied as much as 0.4 percent after May’s statement, to trade above the $1.31 line. Previously, it was heading towards the $1.30 levels.
It also strengthened marginally against the euro to 85.36 pence.
It had fallen 0.5 percent to 86.08 pence as MPs’ failure on Monday to agree on an alternative plan to May’s withdrawal agreement pushed Britain closer to a no-deal Brexit, the worst case scenario for sterling.
“Today I am taking action to break the logjam. I am offering to sit down with the leader of the opposition and to try to agree a plan that we would both stick to ensure that we leave the European Union and that we do so with a deal,” May said in a televised statement from Downing Street.
While May’s demand for a Brexit extension from EU officials or seeking cross-party talks with the opposition may not yield a solution, analysts said her comments indicated a softening approach compared to her strong comments on lawmakers last month.
The pound’s gains were short-lived as investors waited for further developments. Investors have been broadly bearish on the pound, resulting in a shortage in trading volumes which exacerbates price swings.
“We prefer to avoid drawing any conclusions with regards to the currency’s next trending path, as just a headline may be enough to change the whole picture,” said Charalambos Pissouros, senior market analyst at JFD Group.
Sterling: pre- and post-Brexit referendum - tmsnrt.rs/2HGqFjQ
Additional reporting by Tommy Reggiori Wilkes; Editing by Robin Pomeroy