MPs return to Parliament after Supreme Court rule against Boris

The Supreme Court surprised the market yesterday by ruling that Boris Johnson had acted illegally by proroguing parliament for such a long time before the official Brexit date.

The president of the Supreme Court said ‘the decision to advise Her Majesty to prorogue Parliament was unlawful because it had the effect of frustrating or preventing the ability of Parliament to carry out its constitutional functions without reasonable justification’. Parliament will now resume today following its short break according to Commons speaker John Bercow.

The announcement caused a small jump in the Pound because (in theory) it allows MPs more time to put further measures in place to prevent a no-deal. This move in the pound quickly fizzled out though, as a lack of certainty remains over the whole Brexit saga. Now that the Supreme Court have ruled, what is next for the Pound? Here’s some of the main scenarios that could play out:

  • Election – Certainly, Boris is under a lot of pressure to resign but it’s likely he push for another election vote as the Tories are ahead in the polls. This would be Pound negative but it’s unlikely he will get enough votes to get this before his 31st Oct deadline. 
  • No confidence vote – Many lawmakers are now pushing to oust the PM by a vote of no confidence, as they feel they can no longer afford to wait. This would likely be initially be positive for the Pound (as chance to take down hard Brexiteers) but then negative when an election is the outcome.
  • Deal with EU – Boris conjures up a deal before his deadline and saves face (maybe a twist on TMs deal) – Sterling positive. 
  • No deal outcome – Should the EU reject an extension request (needs to be unanimous decision) or if Boris finds a way around the law that requires him to now request a 3-month extension from the EU (which Boris has explicitly ruled out doing) – Sterling negative.

Our base case scenario is that there will be a Brexit extension followed shortly by an election. Undoubtedly, this rollercoaster ride looks set to continue for the Pound as it remains at the mercy of politics. Remaining agile with your buying and selling (along with some strategic hedging) to take advantage of any spikes/dips seems to be prudent over the short- to medium-term.

Pound jumps on optimistic Juncker comments

The Pound has rallied overnight following comments from European Commission president Juncker which have increased optimism of a Brexit deal being made before the end of October. 

In an interview with Sky news, he said “we can have a deal” on Brexit. He also said he was doing “everything to get a deal” and that he is prepared to get rid of the so-called backstop from a withdrawal agreement “if the objectives are met – all of them”. 

Although these comments aren’t anything new, and they’ve been trying to find alternatives to the Irish backstop for a long time, the market has taken this cautiously optimistic tone positively and traders have bought into the Pound. Boris Johnson has sent some confidential proposals for alternatives to the backstop and there seems a new willingness by the EU to explore these ideas and accelerate Brexit negotiations. 

Irish foreign minister, Mr Coveney, has said however that “there’s still a big gap between what the British government has been suggesting that they’re looking for and what Ireland and the EU need in terms of getting a deal”. Therefore, it will all depend on how well Boris’s new proposals protect the EUs red lines. Traders eyes will focus on the upcoming negotiations between Mr Barnier and Steve Barclay. 

Yesterday, we had the last day of the legal battle in the Supreme Court over the Government proroguing of Parliament. We should get their final decision on this early next week, so this is another thing to bear in mind.

As a result, the Pound has pushed up over 1% against the Euro and now trades close to a 4-month high. The GBP/USD has also rallied a 1% higher and trades around the best levels in 2-months.

Pound soars as opposition lawmakers seize control of Parliament today

The Pound has soared today as fears surrounding a no-deal Brexit have receded following events in Parliament overnight.

Last night, lawmakers opposed to Boris’s Brexit plan won the vote (328 vs 301) to seize control of today’s business in Parliament, which gives them a chance to pass a bill today to extend Article 50 by three months (to 31st Jan 2020).

Even after Boris threatened to deselect any Tory rebels, a total of 21 Tories still voted against him in last night’s vote. The bill will be introduced this afternoon and voted on this evening. It’s now given a good chance of passing but the question will be whether they will have enough time to turn the bill into law before the government shutdown.

If the bill passes later, Boris has tabled a motion calling on an election (likely for the 15th Oct). He would need two-thirds of Parliament to agree to this snap election though. It seems Parliament will not go along with this until they’ve taken the immediate threat of a no-deal off the table, which would be another setback for Boris. This has given another boost for those wishing for a no-deal Brexit to be avoided.

So, today the Pound is finding some salvation but the situation is still very fluid and there many complications ahead. No-deal Brexit risks are still on the table and things can change very quickly.

In other news, news that the Hong Kong leader will fully withdraw the contentious extradition bill points towards there being some resolution on the public unrest there. Markets have generally been more upbeat and risk appetite has increased since the news came in. This has boosted risk currencies such as the AUD/NZD and weakened safe haven currencies such as the Yen and CHF.

As a result, the GBP/USD bounced off its 3-year lows and is up over 2-cents from yesterdays low. The GBP/EUR have pushed up by over 1% and trade close to the best levels since the end of July.

Pound drops as political uncertainty weighs

Sterling has lost ground today as political uncertainty ramps up with Johnson suspending parliament and increading odds of a snap general election.  

Last week, Boris Johnson announced plans to suspend Parliament for over 4-weeks from early September which was later authorised by the Queen. This has been met with fury by many MPs who are only returning back from summer recess tomorrow. Whilst Boris refutes that he was trying to prevent parliament from blocking his Brexit plans, this suspension means that MPs will have an extremely limited time to pass any new legislation to prevent a disorderly exit from the EU on the 31st October. Therefore, although some would argue that this is the best way of achieving a deal with the EU before the 31st Oct deadline, this has increased the risks of a no-deal Brexit and continues to keep the pound under pressure.

Parliament will still try to act as quickly as it can this week to try and prevent a no-deal exit. There are two options to do this… one through new legislation or secondly through a vote of no-confidence in the government. Passing new legislation will likely be the first route but this will be very challenging with the time available. Current reports indicate that the main attempt will be to pass a law to extend Article 50 by another three months in a bid to allow more time to get a deal sorted.

If new legislation fails, then numerous Tory MPs have said that they would be prepared to vote against their own party to bring down the current government to help avoid a no-deal. Boris has increased pressure on these Tory rebels by saying that they will be kicked out of the party if they vote against him. With a working majority of only one MP, Boris would need the help of rebel Labour Brexiteers to help maintain his current strategy. If Boris’s plans are scuppered this week, then it is likely that he will call a snap election to be held before the October deadline. These rumours have been growing all day which is creating further political uncertainty and reducing the amount of time available before the Oct 31st deadline.

As it stands, the UK political uncertainty is possibly the highest it has been since the whole Brexit saga began and traders are bracing for more big swings in the Pound over the coming weeks (volatility levels hit their highest levels for year). As a result, the GBP/USD dropped nearly 2-cents from Friday’s high and the GBP/EUR lost around 1-cent from Friday. Watch this space as this week could be an interesting one.