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Pound Falls to One-Week Low as U.K. Seeks Brexit Delay

Pound Falls to One-Week Low as U.K. Seeks Brexit Delay

(Bloomberg) -- The pound fell to a one-week low after U.K. Prime Minister Theresa May confirmed she would only seek a three-month delay to the Brexit deadline and reports suggested the European Union may not support her request.

Sterling led losses among the Group-of-10 currencies as May told Parliament that she was sticking to her plan to avoid a long delay to the U.K.’s departure from the EU. Gilts rallied for a fourth day as her request was met with skepticism, with European Commission President Jean-Claude Juncker reportedly warning May against including a date for the extension that is after the May 23-26 EU elections.

Pound Falls to One-Week Low as U.K. Seeks Brexit Delay

“When we woke up, investors probably thought a long extension was more probable than they think right now,” said Mikael Olai Milhoj, an analyst at Danske Bank A/S. “Investors probably realize that it is not a given the EU will grant the extension.”

With just nine days to go until the U.K. officially leaves the bloc, May has been barred from bringing her Brexit plan before lawmakers again without substantial changes.

Pound Analysts Downplay No-Deal Risk as May Favors Short Delay

Sterling is still the best-performing Group-of-10 currency this year, having strengthened more than 3 percent against the dollar. Despite Tuesday’s decline, demand for protection against undue swings in the exchange rates is still subdued. Four-month implied volatility in the pound is holding near the lowest in six months.

The potential outcomes from here range from a delay to an approval of May’s plan. A delay would keep the pound in a holding pattern between $1.30 and $1.35, according to Kenneth Broux, a strategist at Societe Generale SA. A vote in favor of her proposal would send the currency rallying more than 10 percent to $1.45, he said.

--With assistance from Anooja Debnath.

To contact the reporter on this story: Charlotte Ryan in London at cryan147@bloomberg.net

To contact the editor responsible for this story: Ven Ram at vram1@bloomberg.net

©2019 Bloomberg L.P.