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British Pound Volatile Ahead of Monumental Brexit Vote

Posted by TopstepTrader on March 12, 2019

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On Monday, the British Pound shot 1% higher. Those gains were magnified in the Asian and London trading sessions before the pair sold off sharply. Coming into the office Tuesday, futures and forex traders in the U.S. will see that move nearly fully reversed, with the GBP/USD trading at 1.3060, down from a high near 1.33 in overnight trading.

Tuesday's move came as U.K. Attorney General Geoffrey Cox offered a legal opinion that may make Prime Minister Theresa May's plan less likely to pass today when it comes up for a vote. Ahead of that key vote, here is what to look for as you trade the British Pound. 



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Next Big Vote by March 12

With the UK due to leave the EU on March 29, May has promised another vote on a modified deal by March 12. If that fails, lawmakers will likely take up two separate votes on a) whether the UK should exit the EU with no deal and b) whether Brexit should be delayed. There have been some calls for another referendum on Brexit as well, which would require approval from the EU to delay or cancel the March 29 deadline.

A “no-deal” Brexit is seen as a worst-case scenario for the UK and the British pound. (Late last year, the Bank of England warned that a no-deal Brexit could trigger a financial crisis and a 25% drop in the currency.) But hopes for a delayed Brexit along with diminishing fears of a no-deal Brexit seemed to help lift the pound last week, which is now up nearly 5% year to date against the euro and 4% versus the dollar.

The Pound’s rally came as signs emerged that some of the January “nay” votes might be softening their stance to avoid a delayed Brexit or, worse, another referendum. For instance, Jacob Rees-Mogg, a leading member of the Conservative Party (and author of a recent Letter of No Confidence to the prime minister) said last week that he might back a deal if there is a time limit on the backstop.

Then over the weekend, the Sunday Times of London reported that a breakthrough, called a “peace agreement,” has been ironed out between the competing parties. It lays out three demands: 

  • A "clearly worded, legally binding, treaty-level clause"
  • Language that goes "beyond simply re-emphasizing / re-interpreting the temporary nature of the backstop"
  • A "clear and unconditional route out of the backstop if trade talks fail"

A Smooth Brexit Still Far from a Sure Thing

To entice additional votes in her favor, the prime minister also put forth an idea for a £1.6 billion investment fund for Brexit-backing towns. According to Reuters, the plan, which an opposition party leader called “Brexit bribery,” is intended to boost the economies in the north of England and other areas that strongly favor leaving the EU.

Indeed, with just a few weeks until the Brexit deadline, the prime minister is not out of the woods. Even if the March 12 vote is successful (some still expect it to fail), the EU must also be willing to concede and renegotiate under the modified terms. There’s no guarantee of that.

Yet, despite the uncertainty, the pound is starting the new trading week with additional gains against both the euro and USD – a hopeful sign, perhaps, that the worst-case no-deal Brexit is becoming the least-likely scenario.

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Topics: Forex, GBP/USD, British Pound, TopstepFX

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