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Pound Reverses from 3-Month High After MPs Reject a Delayed Brexit

The pound is back trading in the US$1.30s after British MPs rejected a proposal to delay the UK’s exit from the European Union, which analysts say increases the likelihood of "no deal."

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The pound is trading back in the US$1.30s following Tuesday night’s defeat of the Cooper amendment, which proposed to extend Article 50 for up to nine months if a Brexit deal with the EU was not reached by the end of February.

Members of the House of Commons rejected the amendment to the withdrawal agreement by a majority of 23, and given the limited time remaining for a deal to be struck, this is seen by many in the market as a development that increases the likelihood of the UK leaving the EU without a deal.

GBP to USD - 1 Week chart - Latest
GBP/USD - 1 Week Chart - Latest

It was believed that had it won support from MPs, the extra time the amendment afforded would have been used to achieve a softer Brexit or potentially a second referendum on EU membership that might have put an end to Brexit in its entirety.

On Wednesday morning in London, the pound was stuttering against the US dollar at levels around US$1.307, having been quoted near multi-month highs at US$1.321 on Monday. Against the Australian dollar, sterling fetched only A$1.816, well down on last week’s best rate of A$1.852; against the euro, it bought only €1.144.

Writing on Wednesday, Kathy Lien of BK Asset Management said that an important GBP/USD support level at US$1.305 will be “broken quickly in a move that should take the pair back below 1.30.”

Emboldened by the passing of another amendment—the Brady amendment, which calls for the contentious backstop to be replaced—Prime Minister May will now head back to Brussels in yet another attempt to win concessions.

With Brexit only 58 days away and the possibility of no-deal still on the table, holders of British currency are unnerved.

In November, the Bank of England forecast sterling losses worth 25 percent in the event of a disorderly no-deal Brexit.

 

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