Sterling edged higher this morning but remained stuck within its recent trading range as investors prepared for the European Union to grant Britain a second Brexit delay that.

While that move would lift the threat of a no-deal Brexit, it creates new uncertainties. 

The EU is set to grant Prime Minister Theresa May a second delay to Brexit at an emergency summit today, but the bloc's leaders are likely to demand she accepts a longer extension with conditions. 

May wants an to postpone the departure date to June 30 from April 12, but in Brussels, a "flextension" until the end of the year or until March 2020 was shaping up to be the most likely option, EU diplomats said. 

"We understand why this is being met with limited enthusiasm in the FX markets. 

"Firstly, no-deal risks were already marginal with the EU never realistically going to reject the UK's request. Secondly, a potential longer extension opens up a Pandora's Box of uncertainties that aren't particularly attractive," MUFG analysts said in a note. 

Sterling rose 0.2% to $1.3070, leaving it firmly within the $1.29 to $1.32 range it had traded within for the last two weeks. 

Against the euro, the pound strengthened 0.1% to 86.210. 

Implied volatility gauges for the British currency – market expectations for price moves – over the next week and month have come down sharply.