Sterling weakens as political limbo seen deepening

The pound fell half a percent on Wednesday as investors braced for more British political uncertainty in the coming months after the United Kingdom's Supreme Court ruled that Prime Minister Boris Johnson had unlawfully suspended parliament. While the ruling reduced the likelihood of Britain leaving the European Union without a deal by Oct. 31, it also opened the doors to various options including a new election, a delay in Brexit, or even a second referendum.

"Predicting the ultimate outcome of Brexit remains difficult," said Mark Haefele, chief investment officer at UBS Global Wealth Management. "As a result, the longer-term risk-return outlook for UK equities looks uncertain and we still advise being nimble on sterling."

Against the dollar, the pound fell half a percent to $1.2434. Versus the euro, the British currency weakened 0.2% to 88.41 pence. The Supreme Court's decision called Johnson's suspension of parliament unlawful and said lawmakers should return to sitting.

After the ruling, the British currency strengthened as much as 0.6% to $1.2504 and not far from a 2-1/2 month high of $1.2582. But the currency fell back overnight as investors grew wary about the short term outlook.

"The main risk now is that we are in a never-ending limbo," said Kit Juckes, an FX strategist at Societe Generale in London.

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