The pound edged lower today after registering its biggest daily jump in more than two months in the previous session.

Traders are focusing on the growing risks of Britain crashing out of the European Union without a deal in place by the end of October.  

Though a vote by politicians yesterday makes it harder for Britain's next prime minister to try to force a no-deal Brexit, market watchers have steadily increased the probability of such an outcome this week. 

Economists at Berenberg are now assigning a 40% probability of a hard Brexit.

They said the choice of Boris Johnson, the favourite to succeed Prime Minister Theresa May, to surround himself with hardline eurosceptics is an indicator of such growing risks. 

"By surrounding himself with hardliners, Johnson could find himself boxed into a hard Brexit with little room for manoeuvre," they wrote in a note. 

That has rattled investors and this week they dumped sterling, which dropped to a 27-month low against the dollar and a six-month low versus the euro. 

Those concerns dominated sentiment today with the pound weakening 0.3% to $1.251 against the dollar and 0.1% against the euro to 89.89 pence. 

Derivative markets also signalled a similar degree of unease with implied volatility on the pound for three month maturities rising to its highest levels since early April.