LONDON- The pound plumbed three-month lows on Thursday as the fate of Britain's Prime Minister Theresa May and her Brexit deal hung in the balance, renewing fears of a disorderly departure from the European Union.
May will face calls later in the day from her Conservative Party to set a clear date for standing down and could be warned that she faces a confidence vote next month. She is hoping to again put to parliamentary vote her thrice-rejected Brexit agreement but chances of it passing appear low.
Eurosceptics in her party and its Northern Irish allies as well as opposition Labour lawmakers are expected to reject the deal, with a Labour spokeswoman knocking down speculation the party might abstain.
"What we're seeing is the market pricing in a higher probability of an exit without a deal," Adam Cole, chief currency strategist at RBC Capital Markets, said, noting the growing risk that the bill would fail to pass and May depart before parliament goes into recess in late-July.
"It looks increasingly likely she will be replaced by a pro-Brexit PM with no election, and that automatically increases the chances of a no-deal Brexit."
Britain's deadline for leaving the EU is Oct. 31.
Sterling was down for the ninth straight session, touching a three-month low of $1.2821 while against the euro slipped 0.13% to 87.4 pence, the lowest since February 19.
May's failure to reach a compromise on the Brexit deal with Labour has also seen implied sterling volatility tick higher, with the one-month contract rising to 7.4 vols, a five-week high. That's a rise of one vol since the start of May.
The currency is also being undermined by the global risk-off mood, with tariff tensions between China and the United States threatening to degenerate into a full-scale trade war.
(Reporting by Sujata Rao and Abhinav Ramnarayan; editing by John Stonestreet) ((Sujata.firstname.lastname@example.org; +44 207 542 6176))