Sterling edges off lows after Theresa May’s deal defeated

UK currency rallies but remains firmly in the red against both the dollar and the euro

Sterling was trading down 0.3 per cent at $1.3101 at 7.45pm having been 0.5 per cent lower before voting began. Photograph: Daniel Sorabji/AFP/Getty Images

Sterling was trading down 0.3 per cent at $1.3101 at 7.45pm having been 0.5 per cent lower before voting began. Photograph: Daniel Sorabji/AFP/Getty Images

 

Sterling trimmed its losses in a volatile session on Tuesday evening after UK parliamentarians voted down Theresa May’s tweaked Brexit deal, prompting speculation that an extension on the EU exit date or a second referendum may be on the cards.

Members of parliament voted by a majority of 149 against the agreement, prompting Mrs May, speaking with a hoarse voice, to say they must ultimately decide whether to revoke the UK’s withdrawal notice, known as Article 50, hold a second referendum, or leave with another accord.

“These are choices that must now be faced,” Mrs May said.

Most immediately, Mrs May now faces another vote on Wednesday on whether parliament wants to leave the EU without a deal, with a majority expected to refuse the “no-deal” scenario as economically disruptive. She said Conservative Party members will have a free vote on the matter.

A third vote would then be held on Thursday on whether Britain should request from the EU a limited extension of the March 29th Brexit date.

Down 0.3 per cent

Sterling was trading down 0.3 per cent at $1.3101 at 7.45pm having been 0.5 per cent lower before voting began. The currency was off 0.9 per cent against the euro, at 86.314p, having traded down more than 1 per cent ahead of the vote.

It now looks highly unlikely that the current deal will pass before the March 29th deadline

“Sterling has rallied back from its earlier lows as the UK prime minister confirmed that there would be a free vote for Tories in tomorrow’s ‘no-deal’ vote,” said Lee Evans, head of foreign exchange trading and strategy at Bank of Ireland. “From here, currency markets will focus this week on the UK parliament successfully passing an extension to Article 50 and, if so, they will turn to next week’s EU summit to see what form the extension will take.

“It now looks highly unlikely that the current deal will pass before the March 29th deadline so any sterling gains on the back of an extension may be limited for now.”

The prime minister had sustained an unprecedented defeat for a sitting British prime minister when her deal was first brought before parliament on January 15th, when it was rejected by a majority of 230.

‘Deal is now dead’

“While it’s still unclear if this is the final throw of the prime minister’s dice, her deal is now dead. Yet for all the political drama, the net result is to catapult the Brexit process back to where it was a fortnight ago,” said David Lamb, head of dealing at foreign exchange specialists Fexco Corporate Payments.

Sterling had already been under pressure ahead of the vote in a volatile session on Tuesday, after Britain’s attorney general, Geoffrey Cox, said that while agreements reached by Mrs May late the previous day with EU officials “reduced the risk” that the UK could be trapped indefinitely in the Northern Ireland backstop, it did not remove it altogether.

Subsequently, the Democratic Unionist Party (DUP), which props up Mrs May’s minority government, said it would vote against the deal, and it emerged that a clear majority of the Tory eurosceptic European Research Group (ERG) were preparing to reject the accord.

Earlier, in Asian trading, sterling had scaled a 22-month high versus the euro after Mrs May rushed to Strasbourg on Monday to agree legally binding assurances with European Commission president Jean-Claude Juncker.