TOKYO (BLOOMBERG) - The pound surged the most in three months against the dollar after Prime Minister Theresa May accepted that Parliament should be allowed to vote on her plan for taking Britain out of the European Union.
The pound climbed 1.5 per cent to US$1.2305 as of 12.22pm in Tokyo, rallying from a 4.9 per cent slide over the previous four days. It's set for the biggest gain since July 12. The currency advanced 1.5 per cent to 89.83 pence per euro.
Against the Singapore dollar, the pound was trading at 1.6962 to the Singdollar at 12.25pm, up 0.3 per cent from Tuesday's close, snapping back from a fall to 1.6672 overnight.
The move by the British prime minister eased investor concerns that May would be taking a gung-ho approach to the discussions, even as she asked lawmakers to vote in a way that gives her space to negotiate. Sterling climbed against all its 31 major peers. A gauge of the US dollar retreated from a two-month high that was reached on Tuesday as commodities-related currencies strengthened.
"Given how aggressively short the pound the market was positioned, the prospect of UK parliament at least discussing the downside of a 'hard Brexit' has encouraged substantial profit-taking on those positions," said Mr Sean Callow, a senior strategist at Westpac Banking Corp in Sydney.
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, fell 0.2 per cent, set for its first decline in three days. The yen was little changed at 103.46 per dollar.
Hedge funds and other large speculators increased bets on a weaker pound versus the dollar to a record last week, according to data provided by the Commodity Futures Trading Commission going back to 1992.
Sterling fell more than 6 per cent this month through Tuesday after May signaled her intention to put immigration curbs before the City of London's interests in pulling Britain out of EU.
Investors were spooked by a 6.1 per cent plunge in two minutes during Asian trading on Oct 7, cementing the pound's position as the worst-performing major currency this year. The flash crash was blamed on possible human error and algorithms at a time when liquidity was scarce.
UK lawmakers will debate on Wednesday a motion from the opposition Labour Party calling for Parliament to be able to "properly scrutinise that plan" before May begins formal talks. She tabled an amendment that effectively accepted the motion, adding that there shouldn't be an attempt to block Brexit or "undermine the negotiating position of the government".
"It's not a game-changer and we would sell the pound rally within 24 hours," said Mr Gareth Berry, a foreign-exchange and rates strategist in Singapore at Macquarie Bank Ltd.
"The hope is that Parliament will have a moderating influence over her cavalier approach so far, but we wouldn't count on it. Crucially, May has not agreed to let Parliament vote on whether Article 50 will be activated, and that's what really matters."
A London Court this week will rule whether May can trigger Article 50 of the Lisbon Treaty, which starts an exit, without approval from her fellow lawmakers.
Options traders are more pessimistic on the pound than on any of its developed-market peers. They were paying a 2.3 percentage-point premium for six-month contracts to sell the pound versus the dollar over those to buy, data compiled by Bloomberg show.
"Relief rallies in pound will be limited because of concerns about how tough the negotiations will be, the UK's widening current account deficit and the prospect for more negative UK interest rates," said Mr Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney.
