Pound makes back some ground as EU offer short extension

Mar 22, 2019

The Pound has clawed back some ground after the EU accommodated the UK’s desire for a Brexit deadline extension.

They agreed to two possible extension options. If Theresa May can hold a third meaningful vote, and it passes through parliament (vote expected next week), then they’ve agreed a technical extension until the 22nd May. If, however, she fails to get a majority, then they’ve agreed a short extension until the 12th April to allow MPs to come up with an alternative plan.

These alternative plans could include a much longer extension (for a possible general election, second referendum or alternative deal), leaving without a deal, or revoking Article 50. The odds have now shifted away from May’s deal going through and the odds of a general election, no deal, and second referendum have moved higher.

The Pound has recovered some ground off the back of this news because it has taken some of the pressure off next week’s potential third vote (which was being pitched as a binary one: May’s deal or no deal) . At things stand, May is expected to lose this again (but Brexiteers might have a last-minute change of heart) and without this short extension there would have been increased chance of crashing out on the 29th March.

The EU have played a strong hand during the negotiations and there were firm comments leading into yesterday’s EU meeting (e.g. Macron saying accept this deal or it will be no deal). Fearing a risk of no deal by putting too much pressure on next week’s vote, the EU toned down their language and have been more accommodating than some expected.

When Theresa May was asked about what she would do if her third vote failed, she couldn’t answer the question. She’s previously hinted that she might resign if a long extension to Brexit happens. So watch this space.

As a result, the GBP/EUR and GBP/USD have both bounced back a cent. The next couple of weeks are going to be very interesting and rates are expected to be very choppy.