Pound soars as Brexit no-deal removed from the table, for now

Today's news headlines:

  • 'May bows to MPs’ quit threats and signals Brexit delay’. As expected, the Prime Minister has capitulated, essentially taking no-deal off the table and pushing the Pound to 21-month highs. However, political risk remains present with today’s parliamentary vote still threatening to take control of Brexit from the Government. (Financial Times)
  • 'Britain can’t prepare for no-deal Brexit, warns Mark Carney’. Appearing before the Treasury Select Committee, the Bank of England (BoE) Chief cautioned once again over Brexit, but added explicitly that it was impossible for the country to guard against economic shocks associated with no-deal. A shortage of warehouse space would inevitably ramp inflation at the same time as an economic slowdown. (The Times)

Theresa May on Brexit

Yesterday, a raft of political developments in the UK saw the Pound rise against the Euro to levels not seen since May 2017. Theresa May has acknowledged the March 29th deadline for departure is unlikely to be met and will offer politicians the option to delay if they don’t agree to the next meaningful vote over the withdrawal deal due by mid-March. However, this came with a caveat that should any delay fail, the cliff edge faced in the summer could be even sharper. Later today, politicians will also vote on an amendment that could see control of the Brexit process taken out of the hands of the government but with both flanks of the Conservative Party appeased by yesterday’s developments, Theresa May could still be in the driving seat, again cementing her position and suppressing further talk of a snap general election.

Developments from Brexiteers

In addition to this and potentially in a critical move, hard-line pro-Brexit politicians lead by Jacob Rees-Mogg are also taking a more considered approach over the imperfect deal that’s currently on the table. They are now saying the contentious Irish border backstop doesn’t need to be removed from any agreement. This is to avoid the risk of Brexit not happening at all, but simultaneously it reduces the level of political risk, which in turn, should mitigate the need for a snap general election. Also noteworthy was a speech from the Bank of England Governor, Mark Carney, who said the country cannot insulate itself from the economic shocks associated with a no-deal outcome. All the signals now suggest growing support to avoid such a result, which has the potential to drive further gains for the Pound. This is all positive for Sterling.

GBP/USD

Notable gains were seen by the Pound against the US Dollar during yesterday’s session with the pair adding as much as one-and-a-half cents and pushing out to levels not seen since September. The upside may have been even more pronounced had it not been for the release of some positive US economic data, but the clarity over Brexit is underlining the move higher.

EUR/USD

The Euro posted some modest gains over the US Dollar during yesterday’s session, although given the perceived damage a no-deal Brexit would cause to the Eurozone, the lack of upside here is remarkable. However, concern is building over the prospect of some downbeat Eurozone data in the latter part of the week.

GBP/EUR

The Pound reached levels not seen since May 2017 against the Euro in the wake of yesterdays’ developments. Ongoing risk is likely limiting some upside, so as greater clarity emerges, there’s the potential to see further gains.