Pound jumps as May claims legal guarantees over backstop after overnight talks

Mar 12, 2019

The Pound has pushed higher overnight after last-ditch talks led to Mrs May stating that “legally binding” changes had now been made over the Irish backstop proposals.

If these changes are legally validated by the government’s top law officer, Attorney General Cox, then it would mean that there is minimal risk of the UK being permanently stuck within the EU after the transition period. This would therefore boost support for May’s withdrawal agreement and give her a better chance with this evening’s meaningful vote.

May suffered one of the largest government defeats in history with the first meaningful vote and she will be hoping for more success for this evening’s vote (which is now likely to go ahead). However, she will need the support of the DUP and the more fervent Brexiteers (who are likely to take their lead from the DUP’s decision) to get it through. So far they’ve been relatively quiet as they’re awaiting to hear more details from the Attorney General and his views over how solid the new amendments are from a legal perspective. If they feel the changes are good enough, then we might expect them to support this deal over the risk of there being no Brexit at all. However, if they feel the changes are a bit flaky, then they’re unlikely to support the deal.

Today is going to be a very interesting day as things develop ahead of the key vote later. MPs still don’t have the full information, so they’ll need to quickly digest everything ahead of tonight. It’s likely we will start to hear more commentary as the morning progresses and the rates will jump around depending on what is being said from the different groups. If the DUP feel comfortable with the changes, and their lawyers confirm the guarantees are strong enough, then we expect Tory Brexiteers to follow suit. This would strengthen the Pound as makes a deal more likely pass.

Conversely, if they’re not satisfied, then May is likely to lose the tonight’s vote which will cause more volatility. Parliament would then get to vote on no-deal (or not) tomorrow and then on extending the Brexit deadline of Thursday (or not). The European Commission have said that there will be no more third chances or changes possible, so any extensions would likely make a second referendum and no Brexit more likely.

As a result, the GBP/EUR has bounced around 2-cents higher from yesterday’s low and hit a 22-mth high overnight. The GBP/USD has moved nearly 2.5-cents higher from yesterday’s low  and trades at a 1-week high.

Here is today’s Brexit agenda today:

  • 09.30am – Cabinet meeting
  • 11.15am – Stephen Barclay speaks before the Brexit select committee
  • Early afternoon – Theresa May opens meaningful debate
  • Around 7pm – Voting begins