Pound falls on Brexit uncertainty

The Pound has fallen this morning as chances of a No-Deal Brexit have increased this week. Only last week it looked like May’s deal could go through and GBP/EUR rates touched highs of €1.18. That now seems like a very long time ago. This morning rates have dropped into the low €1.15’s after developments this week cast doubt on whether the deal will go through.

Earlier this week the speaker said the deal couldn’t be brought back before parliament unless it is different. This scuppered the PM’s plans, although she still expects to be able to bring it back for a 3rd and final time next week.

The EU yesterday said that they would only grant a delay to the process if her deal is voted through the commons, raising the chances of the UK crashing out without a deal, and weakening the Pound accordingly. Things are really on a knife edge, and I think there are now 4 possibilities left. These are below along with how each one could affect Sterling.

Brexit Options and the effect on GBP exchange rates

May’s deal is voted through parliament – This would probably send the Pound higher, possibly to €1.20 vs the Euro. It would finally kill off any chance of no-deal, remove much of the uncertainty that has been keeping the Pound under pressure, and allow us all to talk about something else while trade talks are on-going.

May’s deal is rejected, and EU grant a long extension – This would probably send the Pound crashing. There are rumours that if her deal is not voted through, the EU would only grant a long extension that could lead to another referendum or a general election. Extending would just extend uncertainty and the Pound would probably weaken considerably.

May’s deal is rejected, and the UK leaves with No Deal – this is currently the default legal position, and if this were to happen next week, I think the Pound would plunge in value. It’s impossible to know by how much it could drop, but it would probably be quite a big price correction.

May’s deal is rejected, and UK withdraw’s article 50 – This is an option, but in my view the most unlikely. The political ramifications would be enormous. The Pound would rise, but there would probably be civil unrest and cries of thwarting democracy and the will of the people.

Which option is most likely?

The most likely is the deal going through and the Pound rising. The second most likely is a long extension, and the Pound dropping. It’s going to be close and currently I think it’s 50/50.

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