LONDON: Sterling fell more than 1 percent on Wednesday, reversing gains made earlier this week, as strong factory surveys failed to dispel growing concerns over Brexit negotiations and a resurgent US dollar.
After a weaker start, the rebounding dollar sent currencies across developed and emerging markets reeling, with volatile sterling a particularly large faller.
The pound fell more than 1.2 percent to as low as $1.2596 , its weakest since Dec. 17.
The British currency had rallied more than a percent in intraday trading on Monday.
Against the euro, sterling weakened 0.2 percent to 90.07 pence.
"Very little has moved in the Brexit saga over the holiday period (parliament has been in recess for the last two weeks and does not return until next Monday). GBP (looked at against a basket of USD and EUR) remains in the middle of the narrow range that has held since mid-December," RBC's chief currency strategist, Adam Cole, wrote in a note to clients.
Prime Minister Theresa May is struggling to overcome deep opposition to her Brexit plan in her own Conservative Party, raising the risk that no transition period will be provided to ease Britain out of its four-decade-long membership of the European Union.
May postponed a vote on her divorce deal after admitting that parliament would reject it. Lawmakers are set to discuss the agreement again, with a vote in the week starting Jan. 14.
A survey on Wednesday showed British factories ramped up their stockpiling in December as they prepared for possible border delays when Britain leaves the EU.
"Despite this increase in demand, confidence remains weak as everyone knows that these increased supplies of raw materials, constituent parts and finished goods will eventually run out and supply chain disruption will hurt businesses later down the line," said Jeremy Thomson-Cook, chief economist at WorldFirst.
Concerns about Brexit are keeping currency traders on edge with implied volatility gauges in the pound, a measure of short-term currency fluctuations, elevated.
In the futures markets, traders have stepped up their bearish bets against sterling, taking net short bets to a two-month high at $4.8 billion.
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