Pound poised as Boris misses chance for his Saturday vote

The pound remains poised today after Saturday’s much-hyped meaningful Brexit vote never happened.

An amendment to the bill was passed just before the vote was supposed to happen which prevented it from going ahead. The so-called Letwin amendment was designed to prevent the approval of the deal until legislation to implement it had been passed, thereby removing the risk of an accidental no-deal. MPs want more time to scrutinize the legal text before voting on it.

The Government will make a second attempt to get a vote on it today, to either approve or oppose the new deal in principal, but it seems likely that John Bercow will reject this (so it might be tomorrow or later in the week). There’s likely to be a flurry of other amendments put forward as well, including remaining in the customs union and adding on a confirmatory vote onto the proposed deal. 

The result of this meant that Boris had to follow the Benn bill and write a letter to the EU requesting a 3-month extension. He sent an unsigned letter requesting the extension and then a second letter explaining why it was a bad idea. The EU will now consider whether to grant this extension and they might take their time to respond to this but are ultimately expected to agree to one over a no-deal exit.

Overall, although the main vote never happened, there were positives from this weekend’s events and the chances of a no-deal Brexit seem to be falling which has given the Pound support. It’s now poised around some key technical levels with the GBP/USD and GBP/EUR trading around 5-month highs.

Pound rally continues on deal hopes but DUP could be a sticking point

Sterling has continued to gain ground as hopes of a Brexit deal continue give buyers a reason to maintain the rally. 

Brexit negotiations for a draft deal went on late last night and are continuing this morning. Michel Barnier is expected to then brief EU States this afternoon and we’ll get an idea of how the negotiations went. If they go well, we might expect EU leaders to ratify the deal at the imminent EU summit (starts tomorrow). This would likely create some further gains for the Pound. If a draft deal fails to be agreed this morning, however, then we would expect sterling to quickly give back its gains as no-deal comes back into play. 

If the draft Brexit deal is given the green light from the EU, then there will be an emergency sitting in UK Parliament this Saturday. The big question will be whether Boris can get enough support for his deal in Parliament. Reports say that the DUP won’t be able to support what is on offer at the moment. So, unless today’s negotiations can provide enough to sway the DUP, then he might struggle and may be forced to ask for a 3-month extension (or find a way for no-deal).

As you can imagine, the Sterling volatility index is extremely high at the moment, so the market are expecting these big swings to continue. Today could be a big day. 

As a result, the GBP/USD and GBP/EUR have broken some big levels and trade around 5-month highs.

Pound rallies as Ireland/Boris see “a pathway to a possible Brexit deal”

The Pound has rallied overnight following a very positive meeting between Boris Johnson and Ireland’s leader (Varadkar) where it was said they can see “a pathway to a possible Brexit deal”.

These words led to a 2.5 cent jump in the GBP/USD and around a 2-cent move higher in the GBP/EUR. There are various media reports suggesting what the new deal could look like but some are saying that the UK have made some major concessions. While Varadkar spoke to the press after the meeting, Boris remained tight-lipped, which could be a sign that he wants to break things gently to the more fervent Brexiteers in his party (and the supporting DUP).

Some of the reports suggest a pared down free trade agreement to replace parts of the Withdrawal Agreement. A new branding of the Irish backstop might help Boris as this was a key sticking point of the previous failed attempts at a deal. Other reports suggest that Northern Ireland would leave the customs union with the rest of the UK but continue to follow the same rules. This idea is a bit vague and it’s unlikely to go down well with the DUP who do not want Northern Ireland to be treated differently to the rest of the UK.

We’re likely to find out more details later in the day when the chief negotiators (Barnier and Barclay) meet again to thrash things out. Barnier has been heavily accused by the UK of hindering the progress in any talks. If he comes on board with the new proposals, together with the Irish’s support, then it certainly does appear to have some legs. The market now feel an exit deal is more likely to be achieved before Boris’s 31st Oct deadline, but there’s still a long way to go. An extension still seems likely, but Boris might be able to get acceptance for this if the new plans are in full motion.

If we get initial approval from Brussels later on today, then we would expect some further gains to the Pound and vice-versa if they’re shot down by Barnier. If there is a positive response, the market will then focus on the UK’s side of things and whether there would be enough support in Parliament to get this agreed once the details are known. A special session of the House of Commons has already been organised for Saturday 19th Oct which is straight after the key EU Summit on 17-18th Oct.

Things continue to be very fluid and will remain very volatile. We will update you on any major developments.

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.