* World FX rates in 2019
* Trade-weighted sterling since Brexit vote (Adds quotes, details)By Sujata RaoLONDON, March 26 (Reuters) - Sterling bounced against theeuro on Tuesday after two eurosceptic lawmakers indicated theymight agree to support British Prime Minister Theresa May's EUwithdrawal deal rather than risk the UK parliament cancellingBrexit.The comments follow parliament's move to take control of theBrexit process, raising expectations that lawmakers can end animpasse on Britain's European Union exit, with the possibilityof a longer Brexit delay or a second referendum.Lawmakers will now vote on Wednesday on a range of options,giving parliament a chance to indicate whether it can agree on adeal with closer ties to Brussels -- and then try to push thegovernment in that direction. Jacob Rees-Mogg, leader of a eurosceptic faction of May'sConservative Party, hinted that he could scale back oppositionto May's deal, which has twice received crushing rejections fromlawmakers. Passing the deal would rule out the risk of leavingthe EU without any transition arrangements.Another Conservative lawmaker, Michael Fabricant, said hehad arrived at the same conclusion as Rees-Mogg."A no-deal exit does look like quite a low probabilityoutcome, but beyond that there's a wide range of potential pathswe could take," said Paul O'Connor, head of the multi-asset teamat Janus Henderson Investors."The difficult thing for the market is that most optionsthat seem quite soft from an economic perspective do seem tocome with a lot of political risk."The pound, which had languished mostly in negative territorybelow $1.32, rose as high as $1.3261 after Rees-Mogg's commentsbut then eased to $1.3228, up 0.2 percent on the day. Its moveswere also tempered by a modest firming of the dollar.Against the euro, sterling gained 0.5 percent to 85.35 pence , having touched one-week highs of 85.19 pence."Comments by Jacob Rees-Mogg show he is formallyacknowledging he may accept May's deal," MUFG strategist LeeHardman said. "This increases the likelihood that May's dealcould pass."But Hardman added: "His support by itself can't tip thebalance in favour of the deal passing ... The numbers stilldon't stack up."May has also emphasised that she will not implement anyBrexit proposal that breaks her pledge of a clean break with theEU. That means she could call an election, an outcome alsofavoured by the opposition Labour Party.Bookmaker Ladbrokes has cut the odds of a June election to7/2, compared with 6/1 before Monday's vote in parliament.
A source within Northern Ireland's DUP, the party that propsup May's government, was quoted by Sky News as saying itpreferred a long delay and change of leadership rather thanaccept the deal. It later said its position was unchanged. Scotiabank analysts said that, for sterling, it was"premature to celebrate"."The prospect of a soft Brexit (or a lengthy delay) ... hasswayed some reluctant Tory MPs to back May's plan, but itremains to be seen whether May's deal actually gets another votein parliament or whether other eurosceptic Tories - and, moreparticularly, Norther Ireland's DUP - are of the same mind,"they added.
VOLATILEThe uncertainty drove up demand for protection againststerling swings.Implied volatility -- a gauge of expected swings in thecurrency -- eased a touch, however, though the one-monthcontract, encompassing the crucial April 12 new date of Brexit,is close to 3-1/2 month highs hit on Monday .Late on Monday the premium for options that protect againststerling losses over gains against the dollar -- risk reversals-- touched their highest since just after the 2016 Brexitreferendum.
Meanwhile, data highlighted the toll the prolongeduncertainty is taking on the British economy, with bankingindustry group UK Finance reporting mortgage approvals at thelowest level in almost six years. The run of weak UK data, together with a general lurchtowards dovishness by the U.S. Federal Reserve and other centralbanks, has prompted money markets to virtually price out anychance of a Bank of England interest rate rise in 2019, anotherfactor likely to pressure sterling. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^GBP firms, implied vol still elevated GBP risk reversals ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Sujata Rao; additional reporting by Richard Paceand Helen Reid; graphic by Saikat Chatterjee; Editing byCatherine Evans, David Goodman and Peter Graff)
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.