Today MPs are taking part in a debate ahead of a Brexit vote tomorrow. Specifically, they are voting on amendments by the house of Lords that want to make changes to the Brexit withdrawal bill. It was looking like perhaps the government would be defeated, and the Pound had been tailing off throughout the day. However we’re hearing reports that several Tories are now indicating they won’t now rebel against Theresa May. This is greatly reducing the chances of a defeat. As a result the Pound has already recovered all of today’s losses.
How could the Brexit Vote affect Sterling exchange rates?
Generally, anything that increases political instability tends to weaken the Pound. Anything that increases Brexit uncertainty also weakens the Pound.
Tomorrow we will see MPs vote on the amendments to the Brexit Withdrawal bill. The Lords want to make 15 changes to this bill, and the government doesn’t. If the changes are thrown out, then it will probably give the government a stronger position on negotiations. It will also greatly reduce political instability, and Brexit uncertainty will also diminish. This, in my view, is likely to send the Pound higher should the government get their way in the Brexit vote tomorrow.
If the government are defeated however, then it’s likely to throw a spanner in the works. The governments negotiating position will be undermined. The Lords want to make changes that will make it much more difficult to implement Brexit, and push for the UK Staying within the EEC, like Norway. The news that it’s unlikely that some Tories will rebel has already helped the Pound.
Should the government get their way tomorrow, then I think it will lend further support to Sterling, helping it rise back above €1.14+. Of course, the government could still be defeated, in which case the Pound is probably in for a sharp drop. At the moment, I think it’s more likely the Pound will rise tomorrow, but there’s no way to know for sure.
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