January 7, 2020 / 9:57 AM / 21 days ago

Sterling creeps higher as UK parliament prepares for vote on Brexit divorce bill

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

By Olga Cotaga

LONDON, Jan 7 (Reuters) - Sterling strengthened slightly on Tuesday as British lawmakers were set to return to parliament after the Christmas recess and prepare to vote this week on Prime Minister Boris Johnson’s EU withdrawal deal.

After winning an 80-seat majority in the lower house in last month’s election, Johnson’s Conservative Party looks more than likely to pass the bill, analysts say, paving the way for Britain’s exit from the EU on Jan. 31.

There are three days scheduled for debate before a vote on the bill on Thursday. The bill then will go to the House of Lords next Monday.

The pound was last trading up 0.1% at $1.3184, rising also by 0.25% versus the euro to 84.83 pence. It strengthened to as much as $1.3210 earlier, its highest since Jan. 2.

Expectations that Britain will finally leave the bloc this month has ended uncertainty about its position and lifted sterling, but the currency is likely to come under pressure again when negotiations about Britain’s trade deal with the EU begin.

Implied volatility gauges showed no sign of investors fleeing to protect their portfolios ahead of Britain’s expected departure from the European Union on Jan. 31.

Britain’s emergency preparations for a no-deal Brexit have been halted “with immediate effect”, Sky News reported, citing a letter by a senior official at the Department for Exiting the EU.

Neil Mellor, senior forex strategist at BNY Mellon, sees further hurdles in store for the British currency and trade could be volatile.

“There’s going to be a strain on sterling going forward because it’s very clear that the EU doesn’t want to facilitate a competitor,” he said.

For now though, markets are enjoying some sort of Brexit clarity and French President Emmanuel Macron has sounded in the past “accommodating”, so more headlines like this could support sterling, Mellor said.

Investors’ views on the U.S. dollar will also impact the direction of the pound, he added. (Reporting by Olga Cotaga; Editing by Susan Fenton)

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