Sterling dips on doubts about revised Brexit deal

LONDON: Sterling fell slightly on Thursday after a British government source poured cold water on the prospect of an imminent Brexit deal, causing the pound to shed earlier gains.

Hopes that Prime Minister Theresa May can secure some changes to her Brexit withdrawal deal from Brussels, and then get the tweaked agreement through the British parliament, have buoyed the pound in recent sessions.

However, the government source said it did not feel like Britain will have secured the changes it needs to its exit deal with the European Union by next week.

May will hold bilateral meetings with EU leaders at the weekend but the source said she was not expected to return with a "piece of paper" on a revised deal.

The pound was down 0.1 percent at $1.3035 by 1130 GMT.

The resignation of several lawmakers - angry at their leaders' handling of Brexit - from the ruling Conservative and the opposition Labour parties to sit as independents has encouraged some traders to believe that May will show more flexibility in getting a deal and avoiding a no-deal disorderly Brexit in March.

"I'm not yet ready to turn bullish on sterling, but if more people join the Independent Group, it would be like MPs mutinying against their captains in order to steer the ship away from the iceberg. That could be extremely positive for GBP," said Marshall Gittler, chief strategist at ACLS Global.

The British currency had earlier risen 0.3 percent to a day's high at $1.3086 after British finance minister Philip Hammond said that talks with Brussels had been constructive and that lawmakers could vote on a revised deal as early as next week.

One-week sterling implied volatility - a measure of expected price swings in the pound - has risen, as traders get nervous about a possible parliamentary vote on the deal that is scheduled for Feb. 27.

"We haven't had any concrete indication there is likely to be a resolution," said Sarah Hewin, chief Europe economist at Standard Chartered.

"We have seen in the past sterling has reacted quite positively to headlines that may not be very substantial so the problem we have is in differentiating between positive rhetoric and the way the situation is actually portrayed with the EU and the UK government."

Against the euro, sterling also initially gained, rising 0.2 percent to 86.69 pence before losing ground to trade down slightly at 87.04.