The British pound was hammered on Monday following news that a House of Commons vote on the proposed EU withdrawal agreement has been cancelled. Against the US dollar, sterling fell to its lowest level since April 2017.
Relative to the dollar, the pound slumped to levels as low as $1.2506 on Monday afternoon following news that No 10 has cancelled a hugely important House of Commons vote on Theresa May’s proposed Brexit deal.
British MPs had been scheduled to vote for or against May’s much-derided deal on Tuesday, but in the lead-up to the vote, again and again members of her own Conservative party, together with those from Labour, the SNP and DUP, had publicly stated that the Prime Minister would not have their support.
As she addressed Parliament on Monday, May admitted her belief that the deal would have been rejected should the vote have taken place. By cancelling now, May extends her own political career, for a few more weeks at least.
Mrs May has said that prior to a new vote, which might now come as late as January-21, she will go back to Brussels and attempt to negotiate a termination date for any Irish “backstop”—the most contentious feature of her current deal.
Political uncertainty is among the chief causes of currency weakness, so it shouldn’t be to anyone’s surprise that sterling is where it now is. Britain’s currency has lost 12 percent of its value against the dollar since highs posted in April, and nearly 18 percent since the UK’s EU referendum in June 2016; it suffers, too, against the rest of G10 FX.
Sterling’s fate remains inextricably tied to Brexit developments, so the obvious question becomes, will the EU accept a time-limited backstop? The short answer, per the New Statesman’s Patrick Maguire, is “no,” and that’s hardly music to the ears of sterling holders given recent warnings from the Bank of England that no-deal will bring about a currency crash.
Also not confident of a successful renegotiation is May herself. In Monday’s address, she admitted that the government would be stepping up preparations for no-deal.