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Sterling rises on Brexit speculation ahead of Theresa May's crucial vote

Key Points
  • The pound initially fell to a three-week low versus the dollar after a report suggested Prime Minister Theresa May could alter a vote scheduled for Tuesday evening.
  • However, shortly afterwards a pro-Remain lawmaker, Yvette Cooper from the opposition Labour party, said the U.K. Parliament could wrest control of Brexit if May failed to find a consensus with her vote on Tuesday.
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Sterling fluctuated Monday with traders reacting to various media reports ahead of a crunch Brexit vote this week.

The pound initially fell to a three-week low versus the dollar after a report suggested Prime Minister Theresa May could alter a vote scheduled for Tuesday evening. The U.K. leader was expected to hold a second "meaningful" vote on her Brexit withdrawal agreement, after the first back in January saw her plans rejected by a large majority of U.K. lawmakers.

But U.K. newspaper The Sun, a tabloid that is also the most read in the country, said that she is being urged to downgrade the vote to make it purely symbolic. Sterling slipped to 1.296 against the greenback at around 9:30 a.m. London time after trading near $1.301.

Shortly afterwards a pro-Remain lawmaker, Yvette Cooper from the opposition Labour party, said the U.K. Parliament could wrest control of Brexit if May failed to find a consensus with her vote on Tuesday. The pound rose on the comments, pushing back up to $1.300.

By midday London time, the British currency surged again after a May spokesperson confirmed that Tuesday's vote would be going ahead. Sterling hit a session high of $1.3034. By 2:00 p.m. London time it reached $1.308 with a report that May was traveling to Strasbourg for more last-minute talks with the EU. 

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Backstop the sticking point

She has already agreed a draft withdrawal deal with Brussels that sets the terms by which the U.K. leaves the bloc. Among other things this includes what money is owed, how citizens will be treated, as well as what happens at the land border between EU-member the Republic of Ireland and U.K.-ruled Northern Ireland.

The U.K. Parliament has to approve the terms and in the first "meaningful vote," in January, lawmakers rejected the 585-page treaty. Most of the dissatisfaction centered around a safety net arrangement known as the "Irish backstop." It is hated by Euroskeptic lawmakers who fear it will trap the U.K. into a never-ending customs union with Europe.

Britain's top lawyer, Attorney General Geoffrey Cox, visited Brussels in recent days to try to negotiate terms that will satisfy doubtful lawmakers but it had little success. The EU has tried to reassure the U.K. that the backstop is a last-resort and could apply only to Northern Ireland, rather than the whole U.K. but that also is an unpalatable prospect for many British politicians.

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—CNBC's David Reid contributed to this article.