Pound Advances as Rees-Mogg Revives Hopes for May’s Brexit Deal

LONDON (Capital Markets in Africa) – The pound climbed as Brexiteer Jacob Rees-Mogg signaled he could back the U.K. Prime Minister’s deal to leave the European Union, keeping alive the possibility that her plan may eventually pass through Parliament.

Sterling reversed earlier declines to lead gains across the Group-of-10 currencies as Rees-Mogg said Theresa May’s deal was “better than not leaving at all.” Rees-Mogg leads an influential grouping of lawmakers, the European Research Group, who have opposed her Brexit strategy so far.

“The ERG may capitulate and that might see meaningful vote three back in play,” said Jeremy Stretch, head of Group-of-10 currency strategy at Canadian Imperial Bank of Commerce. “The risks of the ERG attempting to encourage the government over the cliff edge have diminished, alternatively the probability of a soft Brexit has increased.”

Sterling gained 0.4 percent to $1.3244 by 11:11 a.m. in London, after earlier falling as much as 0.3 percent. The currency strengthened 0.2 percent to 85.58 pence per euro, while the yield on U.K. 10-year government bonds gained three basis points to 1.01 percent.

The move in the pound may have been exacerbated by thin trading, with options volumes at 75 percent of recent averages, according to data from the Depository Trust & Clearing Corp. The drop to the day’s low led some long positions to be stopped out, triggering fresh buying on the Rees-Mogg headlines, said a trader in Europe who asked not to be identified because they are not authorized to speak publicly.

Parliament remains deadlocked with just weeks remaining until a new deadline to leave the EU. Lawmakers are set to vote on a series of different options Wednesday, including reversing Brexit and holding a second referendum.

Source: Bloomberg Business News