Pound retreats as size of May win underscores Brexit deal opposition

LONDON: Sterling retreated from earlier highs on Wednesday after Prime Minister Theresa May survived an attempt to oust her, but by a margin that only reinforced the extent of opposition to her deal for exiting the European Union.

The pound had bounced off 20-month lows ahead of the result of a no-confidence motion triggered by hardline eurosceptics in her Conservative party angry about her agreement with Brussels.

She won, but 117 of 317 Conservative lawmakers voted against her.

With May still in power but facing an uphill battle to convince colleagues to support her deal, sterling was back at levels of Monday and investors said little had changed

"She is so 'on the ropes' that I cannot really see her winning the confidence vote at this juncture helping very much. In 24 hours, in all probability, this will be little more than old news, and will do little, if anything, to change the EU's negotiation tactics," said Richard Buxton, a fund manager at Merian Global Advisors.

Investors who have shied away from betting on the pound in recent months because of political instability and high volatility were unlikely to be rushing back into the market anytime soon, a senior foreign exchange trader at a European bank said.

A win for May had largely been priced in, and markets are now turning their attention to her struggle to get her deal through parliament.

Sterling jumped to as high as $1.2672 as the result came in but then fell to $1.2605, up 1 percent on the day after the number of lawmakers that had voted against May was announced.

The British currency also erased some of its gains versus the euro and was up 0.7 percent at 90.055 pence by 2150 GMT.

The pound had tanked overnight to 20-month lows after May aborted a planned parliamentary vote on her plan on Monday, and then colleagues gathered enough support to trigger the no-confidence vote.

RANGE OF OUTCOMES

May still needs to seek a parliamentary mandate for her deal, probably before Jan. 21.

She is meeting EU leaders this week to try to get her withdrawal agreement tweaked to persuade colleagues. They believe that the deal in its current form will leave Britain worse off overall.

A range of outcomes remain possible, from a second referendum to a no-deal or a delayed Brexit.

Most investors still think the British parliament will eventually back a "softer Brexit" rather than a clean break from the EU, although nervousness about the outcome has left the pound trading within tight ranges.

"I think it puts us back on track for a central scenario where a soft type Brexit is more likely than the UK exiting without a deal," said Michael O'Sullivan, chief investment officer, International Wealth Management at Credit Suisse.

With the results of the vote announced well after London, the world's biggest FX hub, had closed for the day, some traders had expressed concern thin liquidity - the availability of buyers and sellers - would exacerbate market moves, especially if she had lost badly.

Price swings in the pound have exceeded some high-stakes emerging markets in 2018 as the political drama has escalated.