On Monday, one day before the vote was due to go ahead, Theresa May told a furious House of Commons that their opportunity to vote on her Brexit deal would not come as soon as they’d hoped. The situation is now more tenuous than ever. MPs across the political spectrum are pushing for a no-confidence vote in the government, and what will become of Brexit is unclear.
The pound had already fallen one percent on Monday as reports of the delay began to circulate ahead of the official announcement.
Once Mrs May confirmed the news in a Parliamentary address, the drop accelerated.
Sterling remained weak on global exchanges after markets closed in London, down almost two cents against the dollar at $1.2562, close to its lowest level since April 2017.
It was one percent lower against the euro at €1.1059, its lowest level since August.
Meanwhile, the domestically focused FTSE 250 share index fell two percent, hitting its lowest since December 2016.
The steep falls reflect mounting uncertainty about the terms of the UK’s exit from the European Union, analysts said.
Jane Foley, head of foreign exchange strategy at Rabobank, said: “Until the market knows what will happen with respect to Brexit one way or the other then they [traders] will remain extremely anxious.”
Ms Foley said the threat of a hard Brexit, under which the UK leaves the EU without a deal, as well as the continuing political uncertainty, was “an extraordinary and toxic mix” for the pound.
“Once we know what is happening, things will be more settled,” she added.
This week had always been expected to be a volatile one for the pound because of the vote, with an uncertain outcome.
Some 100 MPs were expected to vote against Mrs May’s deal, with the Northern Irish border issue remaining the key sticking point.
Neil Mellor, currency strategist at BNY Mellon, said the pound’s movements were directly linked to the current political uncertainty.
But he said there was also a question of valuation and how investors “price in Brexit”.
The pound’s movements over the past decade suggested that the pound could be spared a “drastic fall” over a prolonged period, he said.
Mrs May made a statement to MPs at 3.30pm local time, confirming that the vote would be delayed because it “would be rejected by a significant margin”.
She said MPs backed much of the deal she had struck with the EU, but there was concern over the Northern Irish backstop.
On Tuesday, Mrs May raced over to Europe to try iron out the backstop her EU counterparts in a bid of gaining enough reassurances for MPs to back her deal.
However, there is a theory in the market that the turbulence could work in the government’s favour, encouraging MPs to back Theresa May’s deal to avoid a no-deal Brexit.
Silvia Dall’Angelo, senior economist at Hermes Investment Management, said: “In our – admittedly low confidence – base case, stress in financial markets and pressure from businesses should lead to a last-minute approval of the deal in Parliament.”
Published at Tue, 11 Dec 2018 22:08:00 +0000