* UK PM May's Brexit deal falls apart, hurting stocks, FX
* Sterling hits lowest since Jan flash crash against dollar
* But losses curbed on Sky report May will resign tonight
* Graphic: World FX rates in 2019
* Graphic: Trade-weighted sterling since Brexit vote (Updates prices)By Abhinav Ramnarayan and Saikat ChatterjeeLONDON, May 22 (Reuters) - Sterling fell on Wednesday andwas on track for its longest ever losing streak against the eurothough it recouped some of its earlier falls in reaction to aSky News report that Prime Minister Theresa May was about toresign. The currency had earlier plumbed four-month lows againstthe dollar, falling as much as 0.6% at one point as it becameclear that May's last-ditch Brexit plan had failed to win overeither opposition lawmakers or many in her own party.
With the plan appearing dead in the water, some traders saidthey saw a rising chance of Britain leaving the European Unionwithout a transition deal to smooth economic disruption. The pound touched a low of $1.2625, its lowestsince mid-January, and weakened 0.25% against the euro to 88.05pence .
It clawed back some losses after Sky News cited a lawmakeras saying May would resign later on Wednesday. .
"(May leaving) would take away the uncertainty. If she goes,we can move to the next step which is the leadership contest,"said Societe General FX strategist Kenneth Broux. "Of course, that is very short term and doesn't guaranteethe overall direction of sterling."
May's resignation would see senior Tory members jostling totake over party leadership, with eurosceptic Boris Johnson seenas frontrunner to succeed."It's a knee-jerk reaction ... People are hoping a newleader could potentially unblock the Brexit deadlock but that'snot guaranteed as a new leader will face the same parliamentnumbers," MUFG Securities strategist Lee Hardman said, referringto lawmakers' refusal to endorse the EU withdrawal bill or ano-deal Brexit."The pound has been moving to price a no-deal but I stillsee potential for another 2-3% drop in the worst-case scenario."
13 DAYSSterling is meanwhile set for its 13th straight day of fallsagainst the euro, measured by London trading prices, the longestsuch run since the euro began trading in 1999, according toRefinitiv data.
Government bonds surged as well and 10-year yields shed sixbasis points on the day .Political chaos could escalate after Thursday's EUparliamentary election in the UK, where Nigel Farage's BrexitParty is expected to poll strongly, trouncing May'sConservatives. Hardman said he now put the probability of no-deal Brexit at25% compared to 15% some weeks earlier.In mid-March, banks informally canvassed by Reuters saw adiminishing chance of a "no-deal" Brexit. Now there are signs some are changing their mind, withJPMorgan upping its probability of a no-deal Brexit to 25% from15%. Another bank, Nordea, raised the chance of no-deal Brexitto 15%, compared to 10% in March while Mizuho strategists nowsee no-deal chances rising towards 50%."Personally, I suggest chances of no-deal (Brexit) is nearer50% given the way things are shaping up right now. Looking forlower sterling-dollar trend to continue into the EU election andbeyond," said Neil Jones, head of hedge fund currency sales atMizuho.Market positioning on the pound suggested more volatility instore for the British currency. Outstanding net short positionson the pound were whittled back sharply in recent weeks whenhopes grew that May could secure a deal.With positioning broadly neutral, sterling has become morevulnerable to headline-driven selloffs.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Sterling suffers record losing streak vs euro Sterling positions ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Saikat Chatterjee and Abhinav Ramnarayan;Additional reporting by Sujata Rao; Editing by Catherine Evans)
Reuters Messaging: saikat.chatterjee.reuters.com@reuters.net)) 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.