Sterling down as May requests short Brexit extension and awaits EU’s reply

Mar 21, 2019

The Pound has moved lower after Theresa May requested that the EU accept an extension on the Brexit deadline to the end of June.

This is a shorter extension than some in the market had anticipated. She doesn’t want to extend things more than necessary and is hoping it’ll be third time lucky with her deal should she get another chance to put it before Parliament. This short extension would allow the deal (if passed) to be fully ratified in time before the official exit date.

To get an extension agreed, she will need all member states of the EU to unanimously agree to it. There are suggestions, however, that some members are not happy with the suggested date feeling that it should either be a few weeks shorter or a lot longer (to avoid clashing with EU elections). The EU Summit starts today so we will see whether they agree to this date or not.

Although the market has largely priced out the chances of a no-deal Brexit, this shorter extension does mean that if May fails to get her deal through parliament again (possible vote next week), then the extension might not be granted which increases the uncertainty and the odds of a no-deal will also rise (as May seems determined to deliver Brexit).

As a result, the GBP/EUR is down about 1.5% from this week’s high and the GBP/USD is down around 1% from Tuesday’s high. Certainly, Sterling’s move higher has now dissipated and the market awaits further developments over the Brexit saga.

Sterling volatility indexes remain high which means the Pound is like a tightly coiled spring ready to potentially pop (one way or another). It’s unlikely the Pound would be able to break higher out of the recent ranges until a deal is agreed though. Any signs of the Government moving more towards a harder Brexit would obviously take it lower. Increased signs of Brexit going back to the public would likely support the Pound.

Watch this space closely for developments ahead of the weekend and moving into next week as we hit the business end of the Brexit divorce (just to think…. we haven’t even begun to discuss future trade with the EU)