Pound remains supported amid Brexit uncertainty

Pound to Euro

As I’m sure our readers will know, Parliament voted against Theresa May’s Brexit deal. This was not a surprise as the day went on yesterday, it became clear that the DUP and ERG would not vote through the deal.

Tuesday morning starting with optimism that a deal could be agreed. Theresa May came back with the amendments many thought would be enough to vote through the deal. Indeed many ardent Brexit supporters had indicated they would support the deal, and this optimism caused the Pound to rise. At one point GBP/EUR exchange rates were approaching €1.18 which is the highest we have seen in 2 years. However the gains were not to last.

May’s deal torpedoed by Attorney General, Sterling falls

Things started to unravel when it became clear that the Attorney General Geoffrey Cox would not change his legal advice that the UK could be trapped in the ‘Backstop’. It’s not surprising given that he has been a Barrister for 36 years, and a senior politician for less than a year. He has stated that his reputation as a barrister is more important to him that his reputation as a politician, and legally speaking he had to conclude that his legal opinion remained unchanged. As such, as it became clear the vote would not pass, the Pound fell accordingly. GBP/EUR dropped to €1.1550 before recovering slightly.

Why hasn’t the Pound fallen further?

Pound remains supported – The assumption was that the Pound would fall, however as this had been priced in throughout the day, it was largely unchanged when the vote was passed. Today, the Pound has recovered to €1.1650 vs the Euro and $1.32 vs the US Dollar. The reason the Pound hasn’t fallen further, is that many still expect some deal to be agreed. That’s why the Pound remains supported

What next for Brexit and the Pound?

Tonight, MP’s will almost certainly vote against the UK leaving the EU without a deal. On Thursday, a vote will be held on whether to extend Article 50. It’s here that it gets interesting. It could well be that with No Deal ruled out and Brexit supporters feeling that an extension could risk the UK not leaving at all, a 3rd vote could be held as soon as Friday. Perhaps they will conclude that May’s deal is better than extending the process and risk Brexit not happening at all. This is the main reason that the Pound remains supported; No Deal is almost certainly going to be taken off the table this evening. And, as unlikely as it sounds, May’s deal could still get through.

If it doesn’t, then any extension could lead to a whole host of possibilities including May stepping down, revoking article 50, a general election, or another referendum. All of these would simply increase and extend the uncertainty and almost certainly send Sterling into a period of prolonged weakness. The most likely outcome, then, is May’s deal still getting through, sooner or later.

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