LONDON: The pound hovered above a one-month low on Friday as investors mulled the consequences of a Brexit vote defeat in parliament for Prime Minister Theresa May, weakening her hand as she seeks to renegotiate her withdrawal agreement with Brussels.
Though broader moves in the sterling markets were relatively muted, analysts said the latest defeat, although on a symbolic vote, indicates May does not have the support of her lawmakers as she attempts to convince the European Union to grant her concessions with less than six weeks before the March 29 exit date.
"Things are getting difficult indeed ... the important thing is that she does not have parliament at her back," Commerzbank currency strategists wrote in a daily note.
Sterling was trading 0.1 percent lower at $1.2790, and not far from a one-month low of $1.2773 in the previous session. Against the euro, the pound was a shade stronger at 88.13 pence.
Falling market expectations of an interest rate hike from the Bank of England this year are also weighing on the pound. Swap markets indicate a 28 percent probability of an interest rate hike compared to a third earlier this week.
Derivatives markets painted a slightly more cautious picture with one-month implied volatility picking up from December lows and rising to 9 vol on Friday.
Risk reversals, a market gauge of a ratio of puts to calls on a currency, indicate investors are leaning towards buying options to protect themselves against further currency downside.
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