Sterling slides before May outlines Brexit plan B
The pound slid on Monday as British Prime Minister Theresa May prepared to outline her Plan B for Brexit, designed to break the deadlock in parliament by setting out proposals that are expected to focus on winning more concessions from the European Union.
GBP/USD was down 0.3% to 1.2833 by 05:01 AM ET (10:01 AM GMT), while EUR/GBP was up 0.41% to 0.8859.
Sterling had climbed to a two-month peak of 1.3001 on Thursday on growing confidence that Britain can avoid a no-deal Brexit, but faced profit-taking on Friday.
May will make a statement in parliament at about 15:30 GMT and put forward a motion on her proposed next steps, after her Brexit divorce deal was voted down by 432 lawmakers in the 650-seat parliament last week.
Over the following week, lawmakers will be able to propose alternatives. They will debate these plans on Jan. 29, and voting on them should indicate whether any could get majority support.
Attempts to forge a consensus with the opposition Labour Party failed so May is expected to focus on winning over 118 rebels in her own party and the Democratic Unionist Party - a small Northern Irish party which props up her government - with concessions from the EU.
With just over two months left until the Brexit deadline on March 29 there is no agreement in the British parliament on how it should leave the world's biggest trading bloc.
Different factions of lawmakers support a wide range of options including leaving without a deal and seeking a permanent customs union with the EU. Also, a growing number, comprised mainly of MPs who would rather remain in the EU, are now supporting a second referendum.
Buying sterling is not advisable because of Brexit uncertainty, UBS Wealth Management said on Monday, adding that hedging pound exposure over the next three months is one way to avoid market volatility.
While the agreement over a deal could lift the pound to as much as $1.40, "in the case of a cliff-edge Brexit, a lower limit should be around $1.15 given sterling's already cheap valuation," UBS analysts said in a note.