By William Watts, MarketWatch , Aaron Hankin

Should the Brexit draft hit a snag, sterling could test $1.25/$1.26, says BMO strategist

The British pound softened versus the dollar and other rivals Wednesday as investors assess the likelihood U.K. Prime Minister Theresa May will be able to win approval of a draft Brexit deal in the face of heavy skepticism from members of her own government.

The pound traded at $1.2936 versus the dollar, down 0.3% from its level late Tuesday. May was due to meet with her cabinet Wednesday. If May is able to win support for the proposal from government ministers, a summit of European Union leaders could be called for later this month. The biggest test would then be expected in the weeks leading up to Christmas, with a vote in parliament.

Read:Brexit deal faces hurdle as U.K.'s May must sell it to divided government (http://www.marketwatch.com/story/brexit-deal-faces-hurdle-as-uks-may-must-sell-to-divided-government-2018-11-14)

A vote in the House of Commons would be a major hurdle to a deal ahead of Britain's scheduled exit from the European Union in March.

"The prospect for this vote and the noise from the backbenches should be where attention focuses beyond today's news as it drives the risk" between prospects for an orderly exit, a disorderly exit, or even possibly a second referendum, said Adam Cole, chief currency strategist at RBC Capital Markets, in a note.

For Stephen Gallo, European head of FX strategy at BMO, he sees a high likelihood the draft gets the approval on Wednesday, but any hiccup could knock sterling lower.

"Our conviction is medium-to-high, and if we're wrong a quick move to the 1.25/1.26 area would likely be in store," he said.

Meanwhile, the ICE U.S. Dollar Index , a measure of the U.S. currency against a basket of six major rivals, was at 97.152, off 0.2%. The index slipped after the government said consumer prices rose 0.3% in October, matching those polled by MarketWatch. The increase was the biggest since January.

Read:Consumer inflation posts biggest jump in nine months on higher cost of gas, rent, used cars, CPI shows (http://www.marketwatch.com/story/consumer-inflation-posts-biggest-jump-in-nine-months-on-higher-cost-of-gas-rent-used-cars-cpi-shows-2018-11-14)

The greenback was little changed versus the Japanese currency , fetching 113.95 yen.

Oil futures were trading higher after a sharp Tuesday selloff that accelerated a crude-oil rout that saw the commodity fall into bear market territory last week, just a little over a month after trading at a nearly four-year high.

See:5 reasons oil prices are in a history-setting tailspin (http://www.marketwatch.com/story/5-reasons-oil-prices-are-in-history-setting-tailspin-2018-11-13)

The U.S. dollar was off 0.1% versus its oil-sensitive Canadian counterpart at $C$1.3225. The U.S. dollar is up 0.5% against the Canadian currency in November.

"So far the impact on the Canadian dollar has been limited but it will be very difficult for the USD/CAD to fall if oil prices continue to slide," said Kathy Lien, managing director of FX strategy at BK Asset Mnagement, in a note.

Lien said the U.S. dollar is likely to remain strong overall through the end of the year thanks to a combination of solid data, rising interest rates, weakness in equity markets and trade spats between Washington and other major trade partners.

"The only risk is U.S. data. This week we have consumer prices and retail sales scheduled for release. Both of these reports have a direct influence on Fed policy and will determine the market's confidence in Fed's outlook," Lien said.

See:MarketWatch Economic Calendar (http://www.marketwatch.com/economy-politics/calendars/economic)

(END) Dow Jones Newswires

November 14, 2018 09:35 ET (14:35 GMT)