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The pound extended gains on Tuesday and briefly climbed above $1.33 line on expectations that European Union officials would give Britain a delay on Brexit negotiations. Sterling strengthened as much as 0.4 percent to a high of $1.3311 after a report from Bloomberg said EU leaders planned a contingent offer on extending Brexit in the days just before March 29 exit date. The pound later eased back to $1.3284.
The report follows a Reuters article which had quoted EU diplomats on Monday as saying leaders could hold off making any final decision on any Brexit delay when they meet in Brussels later this week. While the pound has been little moved by British economic data in recent weeks, preferring to focus on the progress of Brexit negotiations, the data offered investors an excuse to consolidate their positions after a late selloff on Monday.
The number of people in work surged by 222,000, helping to push down the unemployment rate to 3.9 percent, its lowest since the start of 1975, official data showed.
Sterling got off to a volatile start to the week, shedding half a percent in late London trading on Monday, after John Bercow, the speaker of parliament, said Prime Minister Theresa May's Brexit deal could not be voted on again unless it was substantially altered.
The pound's fall on Bercow's ruling was quickly reversed, partly on confusion over the next steps and a reluctance to take directional bets but also because there was little disturbance to the running market assumption of "deal or delay".
"The predominant notion adopted by the market is that, as long as the worst case scenario of hard Brexit is avoided by delaying Brexit, the pound is a buy on dips," Rabobank strategists said in a note.
Morgan Stanley strategists also said the pound remained a buy on dips. The US bank's positioning tracker showed broader market positions on the pound was broadly neutral.
Against the euro, the pound was broadly steady at 85.55 pence. Despite the latest political developments, various gauges of volatility indicators for the pound ticked lower on Tuesday, reflecting a broader drop in currency market volatility.

Copyright Reuters, 2019

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