LONDON: The pound edged lower on Friday after registering its biggest daily jump in more than two months in the previous session as traders focused on the growing risks of Britain crashing out of the European Union without a deal in place by end-October.
Though a vote by lawmakers on Thursday makes it harder for Britain's next prime minister to try to force a no-deal Brexit, market watchers have steadily increased the probability of such an outcome this week.
Economists at Berenberg who now assign a 40% probability of a hard Brexit say the choice of Boris Johnson, the favourite to succeed Prime Minister Theresa May, to surround himself with hardline eurosceptics is an indicator of such growing risks.
"By surrounding himself with hardliners, Johnson could find himself boxed into a hard Brexit with little room for manoeuvre," they wrote in a note.
That has rattled investors and this week they dumped sterling, which dropped to a 27-month low against the dollar and a six-month low versus the euro.
On Friday, those concerns dominated sentiment with the pound weakening 0.2% to $1.2519 against the dollar and 0.1% versus the euro to 89.89 pence.
Derivative markets also signalled a similar degree of unease with implied volatility on the pound for three month maturities rising to its highest levels since early April.
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