The pound had a fine day against the euro and dollar yesterday, almost hitting €1.15 and $1.31. The moves came following a Brexit delay push, where Labour confirmed it would back an attempt to prevent a disorderly no-deal Brexit. Yvette Cooper has tabled an amendment that could force Theresa May to ask the EU to delay the UK’s exit. Investors clearly believe that a no-deal Brexit is the worst possible scenario for sterling and so any move away from that possibility was always likely to boost the pound.
However, the EU’s Chief Brexit negotiator gave an interview to the Luxembourg Times in which he said that if the UK asked for an extension, it would have to be approved by EU leaders. Interestingly, he added that for this to be agreed, it would require a stable majority in London for all laws related to Brexit. There will no doubt be those who believe the majority of Parliament would prefer an extension, but that is not necessarily the case. We will know more next week.
Jacob Rees-Mogg said that no deal could not be taken off the table without the government’s say so. The pro-Brexit Conservative MP said that May should close Parliament temporarily if necessary to stop the passing of a bill blocking no deal. Later, Brexit Secretary Stephen Barclay said that the government would need to pass legislation to prepare for a no-deal Brexit. Confused? We are. But one thing is clear: rightly or wrongly, the City believes the chances of exiting the EU without a deal have diminished.
If we look at the pound’s recent moves in context, we can see that it has strengthened by 3% against the euro and 2% against the dollar in the last two weeks alone. Such moves present UK importers with an opportunity to de-risk near to the top of the range throughout 2018. It should also serve as a clear warning for UK exporters to lock in their forecasted revenues.
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