A broad rally across global stocks and risky currencies had lifted the pound in early trade after U.S. President Donald Trump and China’s President Xi Jinping agreed to a 90-day ceasefire in their trade dispute to try to resolve their differences.
“Until the British parliament votes on the deal next week, we are going to see a steady drumbeat of Brexit headlines, which is going to keep the pound weak,” said Danske Bank currency strategist Morten Helt.
British Prime Minister Theresa May said she would still be in her job in two weeks’ time, playing down speculation that she might resign if the Brexit deal is not approved by parliament in a vote scheduled for Dec. 11.
“One thing we are absolutely certain of is how much the recent pound stability belies the tension raging beneath the surface; things are only going to get rougher from here,” he said in a note to clients.
Such concerns have also started bubbling up in the currency derivatives market. The pound’s 14-day implied volatility, a gauge of the currency’s expected swings over the next two weeks, has climbed as investors have started betting on a more volatile pound.