Pound Finds a Floor After Brexit Rebels Drop Bid to Rebel Against May, Sterling up 0.25% on Dollar and Euro

The stability of Prime Minister Theresa May's government is under scrutiny once more. Image © European Union.

- May addresses Parliament, looks to stave off rebellion

- Threshold for vote of no confidence in May could soon be reached

- Any strength in Sterling likely to be fleeting

The British Pound is better bid against the Euro, U.S. Dollar and other major currencies Tuesday as political tensions in the U.K. eased somewhat with a planned rebellion by Conservative party MPs being dropped on the back of fresh overtures from the Prime Minister.

Conservative party backbencher Steve Baker had tabled an amendment to the Northern Ireland bill, due to be voted on tomorrow, in which it would be made illegal for Northern Ireland to sit in another customs jurisdiction without the devolved Stormont assembly agreeing to such a move.

The move would effectively kill off the E.U.'s desire for a backstop clause in the withdrawal agreement that demands Northern Ireland slip into the fold of the E.U. customs regime should no adequate trading agreement be reached that guarantees no hard border exists between Northern Ireland and the Republic.

The amendment proposed by Baker flew in the face of Prime Minister Theresa May's preferred Brexit negotiating position that would allow for some kind of backstop and posed the prospect of no deal being reached in negotiations before Brexit day in March 2019.

However, on the back of assurances made by May to parliament on Monday the plans have been dropped.

Baker had reportedly secured the backing of hardline Northern Irish party the DUP; the news sent Sterling sharply lower on Monday.

"GBP under pressure as DUP sides with Euroskeptics against May. Can any UK leader please three stakeholders, the EU, the UK government, and Parliament?" asks Marc Chandler, an analyst with Bannockburn Global Forex.

But, May told parliament later in the day she would not accept an outcome in which the U.K. would remain "indefinitely" in either an extended transition or backstop. This would be the key fear for Brexit purists who are opposed to the backstop plan currently being proposed.

"We would not accept a position in which the UK, having negotiated in good faith an agreement which prevents a hard border in Northern Ireland, nonetheless finds itself locked into an alternative, inferior arrangement against our will," said May.

Baker noted "strong reassurances" from May on the question of the border "backstop".

Sterling is showing relief. At the time of writing on Tuesday, the Pound-to-Euro exchange rate is quoted at 1.1333 having been as low as 1.1290 alread this week. The Pound-to-Dollar exchange rate is quoted at 1.2996 having been as low as 1.2938.

However, we are told any strength in Sterling is likely to be short-lived.

"For GBP, risks remain skewed to the downside as Brexit negotiations ended last week without a deal. We expect EUR/GBP to remain volatile and sensitive to Brexit news in the coming months ahead of the E.U. Summit in December, where we still think it is likely that a deal will be reached," says Allan von Mehren, Chief Analyst with Danske Bank.

May faces a number of challenges in coming days and weeks with 44 members of her party having submitted letters of no confidence in their leader - when the 48 threshold is reached a vote of no confidence is triggered.

Such a move would surely inject fresh uncertainty into Sterling as a leadership challenge at such a crucial point in Brexit negotiations would prove incredibly destabilising to the trajectory of talks increasing the prospect of a 'no deal' Brexit once more.

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Later today May is to brief her cabinet on the state of talks and we will be wary of any headlines coming from this meeting; any signs of a mutinous cabinet will be a risk.

On Wednesday May faces a key test in parliament over the mentioned amendment to the Northern Ireland bill.

Meanwhile, the Prime Minister is under pressure to address the 1922 Committee - the umbrella parliamentary body for backbench Conservative MPs; weekend reports suggest her reception will lukewarm at best.

May has been told she must face MP's and and answer questions pertaining to the concessions she made to Brussels as Brexit negotiations begin to stutter.

May will meanwhile face a vote of no confidence in her leadership should 48 members of the Conservative party have submitted votes of no confidence to the Chairman of the 1922 Committee Sir Ian Brady. At 48 a vote will be triggered.  

We expect Sterling to remain under pressure amidst the ongoing domestic uncertainty.

Yet she has survived; has she done what was needed to buy more time again?

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Bank-beating GBP exchange rates: Get up to 5% more foreign exchange for international payments by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here