Britain’s pound held above 1.31 dollar on Friday after recovering overnight when European Union leaders gave Prime Minister Theresa May a two-week reprieve, until April 12, to decide how to leave the European Union.
Sterling had plunged towards 1.30 dollar on Thursday in its biggest one-day fall of 2019 as fears mounted that Britain would crash out of the EU on March 29.
The EU has said Britain can have a short delay to Brexit, as requested by May, but she must first win parliamentary approval for her withdrawal deal that sets out the future relationship between London and its biggest trading partner.
May, however, has already lost two attempts to secure parliamentary support, and with the odds stacked against her for another vote next week the risk of a no-deal Brexit rose sharply.
The EU’s leaders have described the two-week extension as a “last chance” for Britain to secure an orderly Brexit.
“Last night’s move by the EUCO (European Commission) has lowered the immediacy of hard Brexit risk next week,” Nomura FX strategist Jordan Rochester said.
“But no deal can still happen if Theresa May were to wish it, either next week or on 12th April,” he added.
The pound was up 0.1 per cent at 1.3117 dollar by 0845 GMT, while its gains versus the euro were as high as 0.7 per cent to 86.14 pence – largely on the back of weakness in the single currency following disappointing data out of Germany.
Despite the rise, currency derivative markets signaled a growing caution the outlook for the British currency with one-month risk reversals on the pound versus the euro and the dollar plunging to multi-month highs.