Sterling halted a rally from Wednesday, failing to build on its only gain versus the dollar in the past six days.

Sterling was mixed against its 16 major peers, having outperformed all but one of them on Wednesday, after UK prime minister Theresa May agreed to give the UK parliament the chance to scrutinise the plan for Brexit.

The optimism faded on Thursday as investors returned their focus to concerns over Ms May’s perceived hardline stance on leaving the single market. This week’s slide leaves sterling down about 6 per cent versus the dollar in October, headed for its worth month since June.

Against the euro, sterling was trading at 90.5p on Thursday evening, a touch weaker on the day.

“There’s still scope for a bounce in the pound on positive news surprises, given that short-positioning is very extreme and that sterling valuations are very cheap,” said Sam Lynton-Brown, a foreign-exchange strategist at BNP Paribas in London.

“But as the various parties involved in the Brexit process are staking out their negotiating positions, it doesn’t look like the negative news flow will moderate anytime soon.”

Bearish

The pound was little changed at $1.2188 against the dollar as dealers left their desks in London on Thursday. This came after a 0.7 per cent gain on Wednesday.

”Traders were already bearish on the pound, and yesterday was just a breather, with the market questioning itself” over its pessimism, said Jordan Rochester, a foreign-exchange strategist at Nomura Holdings in London.

Sterling failed to perk up even after figures showed the UK housing market strengthened in September, after the shock inflicted by the Brexit vote faded and a shortage of properties for sale persisted.

“In sterling, good data is just used as further reason to sell it,” said Nomura’s Mr Rochester.

“You saw, after good PMI surveys the pound rallied as a short reaction but then it was sold on the rally,” he said, referring to purchasing-managers indexes of sentiment.

A legal case is being heard in London beginning on Thursday on whether Ms May has the right to invoke Article 50 without consulting parliament.

The section of the EU’s Lisbon Treaty triggers a two-year process to withdraw from the union. Should the judge rule against the government, the case may potentially delay the Brexit process.

Hedge funds

Hedge funds and other large speculators increased their net-short futures positions in the pound to a record in data going back to 1992, the Commodity Futures Trading Commission said last week.

A short position profits from a decline in the currency.

Sterling “is still groping for the bottom,” said Steven Barrow, head of currency strategy at Standard Bank Group in London.

“We don’t know whether it will test or surpass the lows we saw last week.”

Bloomberg