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No-deal Brexit rejected, extension vote next up
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- Sterling jumps 2% after “no-deal” rejection
- Brexit extension vote looms
- Volatility swells after biggest daily gain since 2017

GBP

Sterling jumps 2% after “no-deal” rejection
MPs voted in favour of rejecting a “no-deal” exit from the European Union (EU) last night and the British Pound accelerated higher. Despite the political drama that erupted throughout the day and evening, the pound jumped over 2% versus the USD, JPY, AUD and NZD on the day. Fresh 22-month highs against the Euro were also achieved as GBP/EUR brushed the €1.18 handle before recoiling back to €1.17.

After two years of negotiations and two failed attempts at passing Prime Minister Theresa May’s Brexit deal through Parliament, MPs have now voted to block a no-deal scenario. Leaving with no deal is feared to bring chaos and disruption to the UK economy and potentially cause Sterling to plunge over 10% in value. Despite this risk seemingly removed, it actually still remains the default outcome if no extension to the Brexit deadline is agreed and ratified. In fact, the government’s motion also acknowledged that leaving without a deal remains the legal default unless a deal is agreed, which means even if Article 50 is extended, the UK still risks leaving without a deal further down the line.

PM May has proposed a third meaningful vote on March 20 to try and squeeze her deal through a fractured Parliament. Ultimately, no-deal will remain on the table if a deal isn’t passed by Parliament and Sterling therefore remains vulnerable to downside risk. Speculation now is that hardline Brexiteers will vote for her deal to avoid a long delay to Brexit.

Volatility swells after biggest daily gain since 2017
In the build up to and the wake of the key parliamentary votes, Sterling has swung wildly this week and today could be a similar story. On Tuesday, trading volumes in Sterling derivatives markets, which gives a gauge of Sterling volatility, surged to the highest levels this year. Wednesday saw Sterling record its biggest daily gain versus multiple currencies since 2017.

Sterling oscillated in a 3-cent range against multiple currencies on Tuesday and Wednesday, keeping traders glued to their screens. After the PM’s second resounding defeat on her Brexit deal on Tuesday, Wednesday then brought about more drama sending Sterling tearing even higher late in the night.

The risk of domestic instability, both politically and economically, remains prevalent and the pound will therefore be sensitive to any positive or negative news flow from here as the UK remains locked in limbo over its departure from the EU.

Brexit

Brexit extension vote looms
Today, members of Parliament (MPs) will vote on whether to extend Article 50 and by doing so, delay the Brexit date. With just fifteen days left until March 29, it is widely expected that UK lawmakers will vote in favour of extending this deadline, but the question is how long and how will the pound react?

Whatever length of extension UK lawmakers agree, the 27 EU-member states also need to approve. The EU and UK both prefer a short extension to avoid interfering with the European Parliament elections due at the end of May. However, the UK is far from reaching a majority agreement in Parliament and the EU has repeatedly said a delay requires credible justification so a short extension could be ruled out. If PM May does manage to pass her deal through Parliament by March 20, then a technical extension will be requested to give enough time for legislation and ratification.

A longer extension of one to two years could open the door to a general election and a second referendum, both of which will bring more drama, uncertainty and volatility for Sterling.




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