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.

Pound pushes higher as May reaches out to Labour for support

The Pound has been moving higher after yesterday’s marathon Cabinet talks ended with May announcing that she would begin cross-party talks with Labour to try and break the Brexit impasse.

She will seek another short deadline extension and hope to get the extra votes needed to push her withdrawal deal through. It’s expected she will want to keep the existing (EU-agreed) divorce terms but would look to amend the political declaration about future trade.

Labour has been supporting closer ties to the EU after Brexit – favouring a customs union with the EU. It’s likely May will now need to flex on some of her red line which ultimately makes a softer Brexit more likely. Whether they can actually come to any agreement or not is yet to be seen. There are some suggestions that Corbyn might not be that helpful, instead preferring to allow the Tory party to implode in the hope that would lead to a general election (and him seizing power).

This announcement has been met with fierce criticism from Tory Brexiteers and a large number of her own Cabinet. It could lead to some Cabinet resignations over the coming days and potentially a full-on split in the Conservative party. Obviously, this could lead to some big problems for the government, so this story is by no means over and there’s likely to be some more twists and turns ahead.

As a result, the Pound has pushed up around 1% against both the Euro and USD from yesterday’s low. The market will now be focused on developments in these cross-party talks which could start as soon as today.

Pound slightly lower but remains resilient as market await May’s next move

Good Morning,

A second round of indicative votes by UK Parliament last night resulted in there being no clear majority again for any of the alternative Brexit options. Although the votes were not binding, they were intended to help create a pathway to break the Brexit impasse by giving an idea of how a majority could be found within Parliament.

With no majorities being found on either May’s deal (after three votes) or any of the alternative options (after a couple of votes), the UK is being pushed closer to a potential no-deal scenario on April 12th which is the current default position. Although the odds are still relatively low, some banks have been increasing their probabilities of a no-deal.

Sterling has lost some ground, as a result, but remains remarkably resilient considering all of the uncertainty and as the new deadline fast approaches. Market commentators are suggesting this is because investors are predicting a softer Brexit as the most likely outcome.

Today, Theresa May’s cabinet are thrashing out what their next move should be and it’s likely they’ll be considering a range of different options. One of the most likely options will be to try and put May’s deal forward for the fourth time before the 12th April. At this stage, this seems like their only real option before they’d need to request a long extension (with good justification for doing so. I.e. general election/referendum), thereby having to take part in European elections, or they opt for a no-deal.

The market will be watching closely for any announcements from the Cabinet and the rates will move accordingly.