FX round-up: Pound knocked lower by blinding glimpse of the obvious

The pound was sent reeling by reports over the weekend that the Prime Minister was set to announce the next day that the UK was willing to leave the European Union's single market and customs union in order to regain control over immigration and escape from the jurisdiction of the European Court of Justice.

Although it had been known for some time that the UK might go that far if needed, and despite Brexit Secretary David Davis saying Britain might pursue a transition phase, the pound shuddered lower, approaching its post-Brexit lows at one point in the session.

As of 1654 GMT cable was trading 1.11% lower and changing hands at 1.2052, while euro/dollar was off by 0.34% at 1.0600 and US dollar/yen was retreating 0.41% to 114.10.

May’s spokesperson told Reuters on Monday that the report was “speculation”.

In overnight trade, cable hit an intra-session low of 1.1986.

That was it lowest mark since 7 October, when it plumbed 1.1841, its weakest since 1985.

Depleted trading volumes as a result of the Martin Luther King Jr. federal holiday likely contributed to moves in FX markets.

Nevertheless, implied levels of volatility were also notably higher as traders looked to hedge the risk of sharp swings in Sterling should the High Court decision on Brexit, due out over the next month, come in against Westminster.

"We don’t want the EU to fail, we want it to prosper politically and economically, and we need to persuade our allies that a strong new partnership with the UK will help the EU to do that," Davis said.

On a more combative note, the Chancellor said that if pressed the UK would take all measures necessary to remain competitive.

In the background, at least one newspaper pointed out how US President-elect Donald Trump's offer of a fast-track deal for the UK might have strengthened Britain's hand in negotiations with the European Union.

The US dollar spot index was edging higher by 0.24% to 101.58.