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British pound wobbles before crunch Brexit vote

The pound dropped against the dollar and also lost ground against the euro with investors on tenterhooks before the vital vote.

Britain's Prime Minister Theresa May makes a statement outside 10 Downing Street in central London after winning a confidence vote on 12 December 2018. Picture: AFP

LONDON - Sterling was under increasing pressure Tuesday as British Prime Minister Theresa May faced the prospect of a humiliating parliamentary defeat for her hard-fought Brexit deal.

The pound dropped against the dollar and also lost ground against the euro with investors on tenterhooks before the vital vote.

"The degree of political uncertainty in the UK means that economic news has been almost totally usurped," Rabobank analyst Jane Foley told AFP.

European stock markets meanwhile enjoyed cautious gains after Asia swung higher as worries dimmed over a global economic slowdown and Wall Street posted modest gains in the late New York morning.

The London FTSE-100 stock index even outperformed its eurozone peers, as equity investors welcomed a weaker pound.

With a little over two months to go until Britain leaves the European Union on 29 March, lawmakers are almost certain to vote against May's deal -- which was agreed with Brussels in a fraught and long-running process after the June 2016 referendum to leave the bloc.

The outcome of Tuesday's Brexit vote -- which May delayed in December over fears of an embarrassing defeat -- the result of which is expected around 2015 GMT.

FIREWORKS

Market pundits do not expect a "significant" swing following the outcome -- but they do anticipate "fireworks" as the nature of Brexit becomes apparent in the coming days, weeks and months.

"Today's vote is a foregone conclusion so sterling is unlikely to move significantly," added Interactive Investor analyst Rebecca O'Keeffe.

"However, the range of possible outcomes after today's vote is what is far more interesting," she told AFP.

"From no Brexit, which could see sterling move to $1.40-plus, versus a hard Brexit which could see a move towards parity.

"The fireworks will happen after today -- when it is clear what happens next."

May's last-minute appeals to MPs appear to have fallen on deaf ears and how much she loses by could determine whether she tries again, loses office, delays Brexit -- or if Britain even leaves the EU at all.

Hardline Brexiteers and Remainers oppose the agreement for different reasons and many fear it could lock Britain into an unfavourable trading relationship with the EU.

While the plan is expected to be rejected, experts say the margin of loss will be key. A massive defeat for the government would mean May's deal is dead in the water.

Above all, markets remain fearful of a chaotic departure from the bloc.

MORE UNCERTAINTY

"There may be many possible political outcomes with respect to Brexit -- but for sterling the outlook boils down to whether or not there will be a hard Brexit," added Foley.

"The pound is well off its recent lows on the perception that there is little appetite cross party for a hard Brexit -- though it is still a possibility.

"It seems likely that tonight's vote will be followed by another ballot of some description albeit a second Commons vote, referendum or general election.

"This means more uncertainty and potential volatility for the pound."

Elsewhere on Tuesday, Asian equity markets rebounded from the previous day's sharp losses, with Hong Kong and Shanghai lifted by Chinese plans to slash taxes to boost the economy.

China's disappointing trade data on Monday sent shivers through trading floors as it showed the long-running US tariffs row is beginning to bite.

But dealers resumed last week's rally that was fuelled by optimism that Beijing and Washington will eventually resolve their differences -- and that the US Federal Reserve will pause in raising interest rates.

Key figures around 1645 GMT

Pound/dollar: DOWN at $1.2773 from $1.2864 at 2200 GMT on Monday

Euro/pound: UP at 89.25 pence from 89.15 pence

Euro/dollar: DOWN at $1.1401 from $1.1469

Dollar/yen: UP at 108.58 yen from 108.16

New York - Dow: UP 0.3% at 23,977.01

London - FTSE 100: UP 0.6% at 6,895.02 points (close)

Frankfurt - DAX 30: UP 0.3% at 10,891.79 (close)

Paris - CAC 40: UP 0.5% at 4,786.17 (close)

EURO STOXX 50: UP 0.4% at 3,068.05

Tokyo - Nikkei 225: UP 1.0% at 20,555.29 (close)

Hong Kong - Hang Seng: UP 2.0% at 26,830.29 (close)

Shanghai - Composite: UP 1.4% at 2,570.34 (close)

Oil - Brent Crude: UP $1.14 at $60.13 per barrel

Oil - West Texas Intermediate: UP $1.34 at $51.85

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