The British pound deepened its losses as Tuesday trading progressed, falling below $1.28 with just hours to go until the U.K. Parliament’s crucial vote on Prime Minister Theresa May’s exit plan from the European Union.
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Following a brief peak at $1.2917 during the Asian market hours, sterling GBPUSD, -0.8472% spent much of Tuesday in the red, with its losses worsening. The pound last bought $1.2761, down from $1.2866 late Monday.
On Monday, the U.K. currency rallied to a two-month peak after the Conservative and May-skeptic European Research Group reportedly said it would support May in Tuesday’s vote.
The pound also gave up its earlier gains against the euro EURGBP, +0.2581% with the shared currency buying £0.8931, up 0.1%.
Many observers believe U.K. Prime Minister Theresa May will see her Brexit deal defeated in Parliament Tuesday evening, with a vote expected to take after 7 p.m. London time (2 p.m. Eastern). Tuesday’s vote was initially scheduled for December but was delayed as May expected to be defeated. Labour Party leader Jeremy Corbyn, meanwhile, said last week that the handling of Brexit demanded fresh elections.
Sterling’s direction will hinge on just how much the voting goes against her, according to many strategists.
“Brussels have stood firm, refusing to offer anything other than warm words to Theresa May as she heads to the parliamentary show down. With no further reassurances over the Irish backstop there has not been the change in tide that Theresa May needed,” said Jasper Lawler, head of research at London Capital Group, who expects a “knee jerk sell off in the pound until the next steps or Plan B are given.”
The so-called backstop governs the treatment of the border between Northern Ireland, which is part of the U.K., and EU member state Ireland following Brexit. Hard-line Brexiteers worry it will keep a back door open to the EU. May, who has been adamant that the backstop is just a short-term solution to deal with the border issue, has gained public support for her stance from European Commission President Jean-Claude Juncker on Monday, though still without providing a set timeline.
As for a Plan B, Lawler said it will probably mean renegotiations and extension of Article 50, or an extension to its March 29 date for leaving the EU. That date is based on the two-year breakup period that started when May gave official notice the U.K. would leave the Union.
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Elsewhere, European Central Bank President Mario Draghi said the economic developments in the eurozone have been weaker than expected during a speech at the European Parliament, leading the euro to session lows.
The shared currency EURUSD, -0.6538% slipped to $1.1397, compared with $1.1472 late Monday.
In European economic data, Germany reported 1.5% gross-domestic-product growth in 2018, its weakest figure in five years.
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In the U.S., the dollar firmed amid all the volatility in its European rival currencies. The ICE U.S. Dollar Index DXY, +0.56% climbed 0.5% to 96.123.
In economic data, the producer price index declined 0.2% in December, versus an expected 0.1% dip. For 2018, wholesale inflation was unchanged at 2.5%. The Empire State manufacturing index meanwhile fell to its lowest level in more than a year.
A host of Federal Reserve speakers is still due throughout the day, including Minneapolis Fed President Neel Kashkari and Dallas Fed President Robert Kaplan.
Against the Japanese yen USDJPY, +0.45% the dollar moved higher, reversing Monday’s risk-off move, last buying ¥108.60 versus ¥108.15 late Monday in New York.
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