Traders take profit as Brexit crunch time fast approaches
Sterling has continued to lose ground this morning as talks between the UK and EU remain deadlocked ahead of tomorrow’s meaningful vote in Parliament.
In a bid to get enough support for her proposed deal, Theresa May has been desperately trying to get the EU to change their stance over the Irish border backstop. EU negotiators, however, haven’t budged enough and are yet to provide the legal guarantees needed to ensure that the UK (or more specifically NI) doesn’t remained permanently trapped in the EU should no final deal be made during the transition period which allows for an open border between the Irish Republic and Northern Ireland.
As May’s deal stands, it seems highly likely that she’d lose a meaningful vote by a large margin again. If it is voted down, the next day parliament are expected to have their say over whether they wish to rule out a no-deal Brexit or not. Then on Thursday there would be a vote over whether to extend Article 50 (the Brexit deadline) or not. All of this uncertainty has put the Pound back under pressure.
Facing an imminent defeat tomorrow, there are suggestions this morning that May might possibly change tomorrow’s vote from a meaningful one into a provisional one. This means that she might add some changes to the proposed deal (things yet to be agreed by the EU) to see if it would get the backing of Parliament. The idea being that she could then take this ‘provisionally’ UK-agreed deal back to the EU to help her fight for the necessary EU concessions.
As a result, the GBP/USD has fallen for the ninth consecutive day and now trades around a 3-week low. The GBP/EUR has also lost some shine and now trades around 1.5-cents lower from last week’s high at a 2-week low. We expect the volatility to remain as crunch time gets even closer (now only 18-days to go). An extension to the Brexit deadline would likely support Sterling in the near-term because it reduces the odds of a more immediate no-deal situation.