Pound rallies then drops after DUP refuses to support PM’s deal

Chart : BBC NEWS

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Results of Brexit amendments

Amendment 
Description
Votes in 
favour

Votes 
against

No deal Brexit
Leaving on the 12th April without a deal
160
400
Common market 2.0
Membership of EEA
188
283
EEA & EFTA
Does not involve single market membership
65
377
Customs Union
Keep the UK in the Customs Union
264
272
Labour’s Brexit plan Customs Union but without freedom of movement of people
237
307
Revoke Article 50 In the event of a no deal
184
293
Confirmatory referendum Public vote on a final deal
268
295
Managed no deal Two year transition period with access to EU markets and payment into EU budget till 2020
139
422
  • Theresa May offers to step down earlier than planned if her MPs back her Brexit deal.
  • The above amendments are not binding on the government but will put pressure on MPs to back a ‘softer Brexit’ or the PM’s deal. MPs reject all Brexit options.
  • Pound hits 1.1784 (+0.57%) against the Euro and 1.3267 vs the dollar (+0.48%), then losses half its gains immediately after DUP announces that it still will not support the PM’s deal.
  • The government tabled a motion to allow it to bring the withdrawal agreement for a third vote (MV3) on Friday if necessary.
  • The Speaker of the House reaffirmed his position that a third vote on the PM’s deal would only be possible if there are ‘substantial changes’ to the deal.
  • Many Conservative MPs’ including Boris Johnson and the Chairman of the ERG, who didn’t support Theresa May’s deal are now indicating that they would support it.
  • More votes may take place to eliminate the least popular amendments and end up with one that has the most support.
  • A statutory instrument was approved by Parliament in order to delay Brexit scheduled for the 29th March and to adopt the new dates as agreed with the EU last week.
           
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A sterling roller coaster

A very good indication of the market’s reaction to Brexit is the movement in the pound.

If we consider the various votes held in Parliament in recent weeks together with other Brexit related news a clear pattern emerges. Whenever there is an indication that the UK is moving away from a ‘no deal’ exit there is a noticeable strengthening in the pound (chart above by XE.com)

In early January 2019, when an ‘no deal’ Brexit seemed to be more possible than it is today, the pound fell to its lowest point in recent months trading at just over 1.10 against the euro. As the appetite for a ‘no deal’ Brexit seemed to wane, the pound regained strength and by the end of January it reached 1.1563 against the euro.

Earlier this week, as it became evident that the UK would crash out of the EU without a deal unless the EU granted an extension to Article 50, the pound fell below 1.15 against the euro (from recent highs of 1.1774). After an agreement was reached with the EU late last night, the pound bounced back  to 1.1692 (+1.39%) against the euro (chart below by the BBC).

Investors have picked up on these patterns and are buying the pound on weakness. Over the past year the pound also weakened against the dollar and as a result we are seeing renewed interest from US investors in the London property market.

In the event of a soft or orderly Brexit, the market expects the pound the strengthen further against the euro and dollar, whilst a no-deal exit will in all probability see the pound weaken substantially against major currencies.

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