Sterling began the week with a mixed performance, rising against the dollar but dropped against the euro.
The pound fell 0.19 per cent to €1.1284 off the back of reports that Italy is headed for a breakthrough with its budget, which would bring to an end weeks of wrangling between the EU and the Italian government.
However, the UK currency rose 0.17 per cent against the dollar, to hit $1.2836, after EU leaders signed off on Theresa May’s Brexit deal over the weekend.
Connor Campbell, financial analyst at Spreadex, said the “muted nature” of sterling at the open is “likely because Theresa May’s Brussels success comes laden with some potentially deal-sinking domestic caveats, namely the House of Commons’ ‘meaningful vote’ expected to be held on 12 December”.
Russ Mould, investment director at AJ Bell, agreed that markets are likely to stay sensitive to any Brexit news in the coming weeks.
“The fact that EU leaders have agreed the UK’s exit deal ultimately isn’t enough to convince the market that Brexit will be conducted smoothly,” he said.
“Getting the deal approved by parliament is the real hard task, so UK equities are likely to remain volatile until the vote in mid-December.”
Meanwhile, Hussein Sayed, chief market strategist at FXTM, said sterling traders “know very well that the real struggle is just about to begin”.
“There’s a lot of bad news that is currently priced in sterling, but more to come if the deal is voted down by parliament, so expect risk to remain skewed to the downside,” he added.
