LONDON: Sterling fell to one-month lows on Thursday as investors worried the British government will lose a vote on Brexit, hindering Prime Minister Theresa May's ability to renegotiate and win approval for her European Union withdrawal agreement.
British media reported that a group of eurosceptic lawmakers were preparing to abstain from Thursday's vote, due after 1700 GMT, which could leave May facing a loss.
Thursday's parliamentary debate on Brexit could give investors a sense of which way a forthcoming vote on May's deal with Brussels will go after she lost her first attempt at seeking approval by a huge margin.
The parliamentary session is not expected to be a crunch event, however, 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 analyst Petr Krpata.
The pound fell as much as half a percent to $1.2782 , a one-month low.
It also declined as much as 0.8 percent against the euro to 0.8835 pence but much of that move lower was caused by strength in the single currency.
"The move in euro/sterling seems to be a broad dollar weakness trend. The debate this week has been between the Fed pause or whether other central banks have become more dovish and that is basically moving the US dollar," said Ulrich Leuchtmann, an FX strategist at Commerzbank.
UK 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.
Despite jumpy cash markets, currency derivative markets appeared somewhat relaxed on the near-term prospects for the pound.
Implied volatility - 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 indicates some degree of optimism on the currency.
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