Pound unfazed as Brexit can kicked down the road until Halloween
The Pound is unfazed after the EU agreed to extend the Brexit deadline until the 31st of October.
Although this removes the risk of a no-deal cliff-edge tomorrow (a positive for Sterling), agreement of the extension had already been widely anticipated and the potentially prolonged uncertainty (both political and economic) has offset the benefit on the Pound.
The volatility index has subsided in the last week, so the market is now not expecting as big swings as they were a couple of weeks ago. Furthermore, cross-party Brexit talks don’t seem to be moving forward that quickly. So, unless we see a change of heart from the DUP/Brexiteers over May’s deal (or something radical happens with the backstop), we could be set for more subdued trading in the Pound for now.
The EU is hoping the extra 6-month extension will provide enough time for the there to be significant changes to the UK’s Brexit approach and/or parliamentary change. This time could lead to a new PM, a softer (customs-union) Brexit, general election, or even a second referendum. It’s likely, however, that May will continue to try and ratify her deal before the EU elections (so within the next 6-weeks). Importantly, the extension offered by the EU is a flexible one so we can leave earlier than the Halloween deadline.