British Prime Minister Theresa May suffered an early setback to her Brexit plans ahead of a key vote in parliament next week. Photo: AP

LONDON – Sterling fell against the euro on Wednesday after British Prime Minister Theresa May suffered an early setback to her Brexit plans ahead of a key vote in parliament next week.

With less than three months before Britain is due to leave the EU, parliament began a five-day battle over May's Brexit plan, demanding the government come up with a plan-B within days if she loses a vote on her deal to leave the European Union.

Parliament is due to vote on the agreement on January 15, and May looks set to lose the vote unless she can convince opponents within and outside her party to back her deal. The run-up to the vote is likely to dominate trading of sterling.

At 6:40pm the pound was down half a percent against the euro at 90.38 pence, not far off a 16-month low of 91.02 pence.

Sterling was up 0.3 percent against a broadly weaker dollar at $1.2756.

The pound gained earlier in the session following a media report that May is attempting to win over the Northern Irish DUP party in next week's Brexit vote.

It later lost ground when the DUP called May's plans to offer concessions on provisions on Ireland's post-Brexit border "meaningless".

"A positive vote on the exit agreement with the EU next week has not become any more likely. So please do not go ahead and buy sterling hoping that a no-deal Brexit has become less likely ... Beware of false hopes," Antje Praefcke, an analyst at Commerzbank, wrote in a note.

The risk of sterling falling against the dollar is deemed the lowest in over six months, according to cable option pricing.

Sterling's relative strength in recent days is mostly down to dollar weakness - the pound's performance against the euro has been more muted. 

Reuters