Pound steadies near $1.31 as Brexit talks resume

LONDON - 7 May 2019: The pound remained stuck near $1.31 as Brexit talks resumed on Monday between the British government and the main opposition party and traders refrained from taking positions on the currency.

Negotiations between Prime Minister Theresa May’s government and the opposition Labour Party over the terms of Brexit, in particular the shape of a customs union, are deciding sterling’s direction.

The British currency jumped to a one-month high on Friday on hopes the talks might lead to a Brexit deal, but a breakthrough is unlikely this week, the BBC’s political editor cited an unidentified senior government source as saying.

“We do not expect to see much progress ahead of the next Brexit deadline at the end of October. This seems to be a view shared by the options market – the implied volatilities continue to trade close to the lows seen over the past years,” said Charlie Lay, an FX strategist at Commerzbank in Frankfurt.

May agreed a withdrawal deal with the EU last year, but it was rejected three times by a deeply divided British parliament. That delayed the exit date, a postponement that has weighed on the pound as investors fret about prolonged political uncertainty.

Against the dollar, the pound traded flat at $1.3090 and was steady against the euro at 85.48 pence.

Sterling has traded in a narrow range of $1.28-$1.31 since Britain last month pushed its scheduled departure from the European Union back from March until Oct. 31.

There is still little clarity about when, how, or even if, Brexit will happen.

Investors have been broadly impervious to tepid economic data recently and even relatively hawkish comments from the Bank of England last week failed to jolt the currency.

Overall volatility in the currency markets remained near five-year lows and net positions by hedge funds in sterling have slipped back into negative territory.