* Graphic: World FX rates in 2019
* Graphic: Trade-weighted sterling since Brexit vote (Adds context, quotes and updates prices)By Olga CotagaLONDON, Aug 7 (Reuters) - Sterling was stuck on Wednesdayaround its weakest levels since 2017, having matched a two-yearlow against the euro, as investors further priced in theprobability of Britain leaving the European Union without a dealin place.Boris Johnson, who took over as prime minister two weeksago, has said he would take Britain out of the EU on Oct. 31,with or without a divorce agreement to smooth ties with thebloc.He said he is looking to negotiate a deal with the EU, buthe also demanded that Brussels show a willingness to change thedeal it agreed with his predecessor before negotiations. The EUhas repeatedly said it will not reopen the negotiations.Johnson's insistence that Britain is boosting preparationsto leave without a divorce agreement has spooked markets, andlast week it sent the pound tumbling.With the clock ticking, there may be no time left to preventa no-deal exit, which could tangle up trade routes.On Wednesday, Britain's food and drink lobby warned thatBritain would experience shortages of some fresh foods for weeksor even months if a disorderly no-deal Brexit left perishableproduce rotting in lorries at ports. Most investors have been forced to recalculate theirassumptions of a no-deal Brexit. Odds on betting websitescurrently suggest that the probability of Britain leaving the EUthis year without a deal is roughly 60%.
"There is so little time left between the start of the nextparliamentary term and Oct. 31 that the PM needs only to rundown the clock to allow the UK's legal default position of a'no-deal' Brexit to take place," said Jane Foley, a seniorcurrency strategist at Rabobank.
The pound was slightly lower at $1.2162 on Wednesday, notfar from the 31-month low of $1.2080 it reached at the beginningof the month .
Against the euro, the pound was down by 0.3% at 92.34 pence,having fallen earlier to 92.49 as it matched the August 2017 lowit reached on Tuesday. . Rabobank's Foley estimatesthat a no-deal Brexit uncertainty is likely to pusheuro/sterling towards parity."It is highly likely that euro/sterling will continue tomove higher," she said.The derivatives market implies that traders foresee furthersterling weakness.
Three-month sterling risk reversals , which coverthe October deadline, show that investors have been buying moreoptions betting the pound would fall than options betting itwould rise.According to the Commodity Futures Trading Commission data,leveraged funds added more net short sterling positions in theweek to July 30, taking the amount of contracts to $6.85billion, its highest since May 2017.
However, some market watchers are more optimistic, stickingto the view that the worst is left behind.
"The pound has taken the most of the Brexit pain. Its stressindex is at its highs," said Jordan Rochester, forex strategistat Nomura.
Andreas Koenig, head of global forex at asset managerAmundi, said he was underweight sterling, but only slightlybecause the many possible Brexit scenarios leave the door openfor sterling moving in either direction. (Reporting by Olga Cotaga; Editing by Alison Williams)
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