May hammered in Brexit vote but Pound buoyant

Jan 16, 2019

Theresa May’s Brexit withdrawal deal suffered a crushing defeat last night – losing by 230 votes!

A defeat was expected but not one of such scale. The DUP (who prop up May’s government) had already said they wouldn’t support the deal but also 118 Tories rebelled and voted against the deal. She only managed to scalp three rebel Labour lawmakers (and three inds.) which left her massively short of votes.

The pound dropped in the close run up to the vote and immediately after the results were declared. However, this quickly reversed, with the Pound being bought back, in a classic “sell-the-rumour, buy-the-fact” move.

Labour leader, Jeremy Corbyn, promptly called for a vote of no confidence in the government and the vote will happen this evening (around 7pm). Should May’s government survive this, which is expected, then she’ll hold cross-party talks to try and find out how she can get a deal over the line. This will be a major ask because the vote was so far off and the EU are still not flexing.

Although the government have been fairly adamant they won’t extend Article 50, it seems likely they will now need to (unless May can work some magic in next couple of days!)

If Theresa May’s government maintain power, then she will inform Parliament on Monday about her Plan B. This is likely to be re-opening up negotiations with the EU. A rehash of the current deal is still generally the most widely expected outcome for Brexit. There’s a clear cross-party majority on avoiding a no-deal scenario, so she just needs to come up with an idea of how to get them a majority of them together (easy… right?)

Anyway, as mentioned in yesterday’s update, there is a growing sense in the market that a disorderly no-deal is deemed very unlikely (regardless of it being the current default position). This has kept Sterling buoyant even though there’s lots of uncertainty. As a result, and after yesterday’s large swings, the GBP/EUR continues to trade around a 6-week high and the GBP/USD around a 2-mth high.

We will keep you updated with any major developments that could affect the rates.