LONDON: Sterling fell to a four-week low on Thursday ahead of a parliamentary debate on Brexit that could give investors a sense of which way a forthcoming vote on Prime Minister Theresa May's deal with Brussels will go.
The parliamentary session is not expected to be a crunch event because May has promised that lawmakers will get another chance to express their opinion on Feb. 27.
But with only six weeks to go before Britain is due to leave the European Union, markets are growing more anxious. Many traders are avoiding taking positions until a firm resolution on Brexit is secured.
"Today's vote in parliament could prove a mild negative for GBP were news of another defeat to PM May to emerge (but) this vote is really only on whether parliament backs May's negotiating stance," said ING's chief EMEA FX and interest rate strategist, Petr Krpata.
The pound fell 0.3 percent to $1.2814, a one-month low. It declined 0.2 percent against the euro to 87.83 pence.
Lawmakers could on Thursday vote on a series of amendments, including one that calls for a second Brexit referendum.
The Guardian newspaper reported that up to 10 frontbench opposition Labour MPs have threatened to resign if party leader Jeremy Corbyn does not support a pro-referendum amendment.
If May did open the door to a second referendum, analysts say that sterling would bounce significantly.
Turnover in the pound has declined in 2019 compared to its counterparts, with many hedge funds and day traders trying to move the market by trading technical levels and Brexit headlines.
Despite jumpy cash markets, currency derivative markets were somewhat relaxed on the near term prospects for the pound.
Implied volatility on the pound - or expected swings in the British currency - has fallen to a more-than three-month low of nearly 10 vol compared to 14 vol in early December.
Positioning data indicated some degree of optimism on the currency.
May is seeking changes to her deal with Brussels after it was roundly rejected by parliament on Jan. 15. She has said she wants to put a revised deal to a vote soon but has not yet set a date.
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