UK Parliament takes control of Brexit, Sterling slips amidst likelihood of snap polls

Sterling slipped on Tuesday after the British parliament's moved to wrest control of the Brexit process for a day, raising expectations that lawmakers can end an impasse on Britain's European Union exit, but also the chances of a snap election. Parliament will now vote on Wednesday on a range of Brexit options, giving parliament a chance to indicate whether it can agree on a deal with closer ties to Brussels - and then try to push the government in that direction.

However, Prime Minister Theresa May has stressed she will not implement any proposal counter to her pledge to a clean break with the EU. That means she could call an election, a prospect backed also by the opposition Labour.

If Britain cannot outline a plan by April 12, it must leave the European Union by May 22 with or without a deal, according to the terms of an extension granted recently by the bloc. The pound traded at $1.3180, down 0.14 per cent on the day, having risen to $1.3224 after Monday's parliament vote. Against the euro it was flat at 85.80 pence.

"The rising risk of a general election and a no-deal Brexit remain potential banana skins for the pound in the near-term. We are confident that pound volatility should remain elevated," MUFG analysts told clients. Sterling implied volatility -- a gauge of expected swings in the currency -- eased a touch however, though the one-month contract, encompassing the crucial April 12 date is close to 3-1/2 month highs hit on Monday

Jitters are also reflected in UK government bonds where 10-year yields remain well below one per cent, the lowest since Sept 2017.