Sterling steadied on Wednesday but held near a two-week low as investors mulled a report that UK cabinet ministers are discussing plans to delay Brexit by eight weeks.
The UK pound has previously rallied on signs that the March 29th date for Britain to leave the European Union could be pushed back with traders betting it would reduce the chances of a disorderly no-deal Brexit.
The Telegraph newspaper reported late on Tuesday that the delay would postpone Brexit to May 24th.
British prime minister Theresa May will travel to Brussels on Thursday to tell EU leaders they must accept changes to the post-Brexit Irish Border arrangements or face the prospect of a disorderly no-deal exit.
In early European trade sterling was up 0.1 per cent at $1.2954, not far off a two-week low of $1.2923. It was down 0.3 per cent against the euro at 87.9 pence. By mid morning, it was trading at 89.73p.
Sterling slumped to a two-week low on Tuesday after a survey suggested the British economy was flat-lining. That bucked a trend of the currency largely ignoring economic data and instead swinging wildly on news about the Brexit talks.
The currency has been supported in recent weeks by belief that a last-minute agreement will avert a no-deal Brexit.
Jitters
But jitters returned after the January 29th vote in parliament which asked May to persuade the EU to accept changes to the Brexit agreement.
"I can understand that speculative market participants are ready to bet on the GBP recovery. However, that should not prevent the market from reflecting the changing likelihood of a 'no deal' proportionately in the GBP exchange rates," said Ulrich Leuchtmann, an FX strategist at Commerzbank in Germany.
“I do not consider GBP weakness during this time to be sufficiently priced in.” – Reuters
