Markets

Sterling rises after UK lawmakers win bid to try to block no-deal Brexit

Pound rallied 0.4% against euro to rise to 90.78 pence

British prime minister Boris Johnson after losing a key Brexit vote on Tuesday. Photograph: UK parliament/Jessica Taylor

Wed Sep 4 2019 - 10:19

Sterling rebounded on Wednesday after British lawmakers seized control of the parliamentary timetable to try to block a no-deal Brexit.

The gain, which followed the pound slumping to a three-year low on Tuesday, is likely to precede more big price swings in the currency as the battle over Brexit enters another crucial phase.

Lawmakers who defeated prime minister Boris Johnson's government late on Tuesday are expected to introduce a bill in parliament on Wednesday seeking to stop Britain from leaving the European Union on October 31st without transitional arrangements.

This prompted the prime minister to announce that he would push for a snap election. It is expected that the motion for an early general election will be submitted on Wednesday.

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Sterling, which on Tuesday fell below $1.20 and to its weakest in three-years, rose 0.5 per cent to the day’s high of $1.2157 . Against the euro it rallied 0.4 per cent to 90.78 pence .

Two-month implied volatility in sterling, which captures the Brexit October 31st deadline, eased off the three-year high it reached on Tuesday as investors’ nerves calmed a bit, but it remains elevated.

Cautious welcome

The uptick reflected the cautious welcome by investors given that the defeat still leaves the course of Brexit unresolved, with possible outcomes ranging from a turbulent no-deal exit to abandoning the whole endeavour.

An election would increase uncertainty and open up a new set of scenarios, one of which could see opposition leader Jeremy Corbyn as prime minister, which analysts have said could hurt the pound.

Most analysts predict Wednesday’s support for sterling will be temporary, projecting further hurdles for the British currency.

“We note that the likely resulting early elections doesn’t bode well for the pound,” said ING analysts in a note, adding that “not only uncertainty about the election outcome remains high, but the most probable alternatives don’t appear to offer much of a respite for sterling.” – Reuters

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