The Pound Sterling Live: Retreating from Euro and Dollar as Market Eyes Parliament Brexit Votes

Image © Number 10 Downing Street

- Leadership speculation adds to uncertainty ahead of key Brexit votes.

- May is entrenched, can only be removed if government brought down.

- Chequers Sunday fails to yield Brexiteer support for EU Withdrawal bill.

- Parliament set to take control, but still no majority for any one path. 

- DUP says May "missed an opportunity", rejects Withdrawal Agreement.

- April 12 brings choice between No Deal and another Art 50 extension. 

Sterling was weaker against the Euro and Dollar at the London close on Monday after Prime Minister Theresa May offered little clarity on when she will put her signature bill before lawmakers again, and as MPs began attempting to assert themselves on the government. 

Prime Minister Theresa May told the House of Commons Monday that she has not yet set a date for the third vote on her EU Withdrawal Agreement because she cannot be sure that it has enough support among MPs to clear the House. 

She also told parliamentarians that a so-called no deal Brexit will not happen unless there is a majority in the House of Commons for it. However, she also then claimed that she will not allow the government to become bound by "indicative votes" on non-binding motions.

This sets the stage for what could be a days-long period of horse-trading between Conservative Party MPs on the back benches and the Prime Minister as she attempts to coerce the handful of Brexit-supporting lawmakers in her party into backing her proposed withdrawal Treaty. 

Meanwhile, MPs began voting on a series of amendments to a non-binding motion titled "Statement under Section 13 (4) of the European Union (Withdrawal) Act 2018" on Monday evening and will continue to express their preferences this way over the coming days. 

Included in Monday's business is a Labour Party amendment seeking to force a House of Commons vote on whether to make a customs union that has been dubbed "Common Market 2.0" official policy.

That amendment also seeks to offer MPs another chance to vote on whether to send the public back to the polls in another referendum. 

An additional amendment that has garnered market attention is that put forward by Conservative Party MPs Oliver Letwin and Dominic Grieve, as well as opposition MP Hilary Benn.

This seeks to earmark time on Wednesday for a series of "indicative votes". Speculation has it that those amendments will be similar in nature to the opposition one above. 

"The softer Brexit option put forward by the Labour party of adopting a permanent customs union could have the best chance of securing a majority in parliament. If a softer Brexit plan is able to secure a majority in parliament it would be welcomed by the pound, whereas the pound would take a hit if no majority can be secured for any alternative option," says Lee Hardman, a currency analyst at MUFG.

A so-called no deal Brexit remains an option on the table despite it having been rejected by MPs in a parliamentary ballot earlier in March and the market's focus has now turned toward April 12 which, absent House of Commons backing of the EU Withdrawal Agreement, will see government choose between a further extension of the Article 50 negotiating window and leaving the EU without a withdrawal agreement. 

"If the Brexit deal is approved by the House this week, the EC has agreed to extend the departure data to 22 May 2019. GBP would rally sharply across the board under this scenario," says Elias Haddad, a strategist at Commonwealth Bank of Australia. "GBP volatility will remain high in the near term because the risk of a no deal/hard brexit on April 12 cannot be fully eliminated."

There is significant uncertainty over whether a majority can be found in parliament for any one Brexit path. Indicative votes will not bind the government and MPs cannot oblige the EU to agree to their desired way forward.

Furthermore, if PM May fails to secure backing for her Withdrawal bill and still refuses to countenance a no deal Brexit on April 12, the EU can demand a price for any further extension of Article 50. 

That price could be an instruction for Westminster to have Britons return to the polls and vote in either another referendum or a general election.

Either of those would create significant scope for the Brexit process to be abandoned in the short-term at least, although what that would mean for national politics afterward is far from clear.

"Parliament can do what it wants, but it needs to find a compromise it can live with this week, and have May then agree to listen to it, or off the White Cliffs of Dover the UK goes. Yes, a million people (and not Jeremy Corbyn) just marched through London to say “not in my name”, but that will have as much effect as the same number of marchers did in 2003 over the Iraq War unless May goes: but will she? The latest news is her ministers are actually rallying round her," says Michael Every, a strategist at Rabobank. 

Above: Pound-to-Euro rate shown at hourly intervals.

The Pound-to-Euro rate was -0.31% lower at 1.1648 after the London close Monday, but is still up 4.8% for 2019. All Sterling exchange rates have been volatile in 2019, but particularly during the month of March.

"A cliff edge on April 12 would likely result in the pound plunging lower. We would risk on this scenario of EUR/GBP heading toward parity [GBP/EUR @ 1.00] and cable lurched down below GBP/USD 1.15. That said, various other possibilities are being discussed about what could happen if parliament again rejected May’s deal next week," says Jane Foley, a currency strategist at Rabobank. 

The Pound was quoted -0.10% lower at 1.3182 against a softer Dollar but has risen 3.5% this year. This rate has been impacted not only by Brexit-related volatility, but also by big swings in the Dollar of late. 

"GBP/USD last week eased back to and recovered from the 55 day moving-average (MA). It has held over the 200 day ma at 1.2980 and for now we will continue to favour the topside," says Karen Jones, head of technical analysis at Commerzbank. "Provided that dips lower are contained by the 200 day ma, our overall target remains the 1.3563 200 week ma."

Above: Pound-to-Dollar rate shown at hourly intervals.

 "We still wouldn't automatically make no-deal our base case, even if MPs can’t coalesce around one option by April 12. The government would lose a confidence vote if it tried to go over the cliff-edge," says Samuel Tombs, chief UK economist at Pantheon Macroeconomics. "MPs likely would vote to revoke article 50 and pledge to trigger it again soon, rather than go over the cliff edge."

Former Foreign Minister and Brexiteer stalwart Boris Johnson said in a Telegraph op-ed at the weekend that Prime Minister Theresa May is "a chicken who's bottled Brexit" and that the only way forward is to "come out of the EU now", in an apparent reference to his preference for a so-called no deal Brexit. 

That kind of exit was advocated by Roger Bootle, founder and chairman of London-based consultancy Capital Economics, at the weekend. 

Johnson was coy about how he intends to vote when the EU Withdrawal bill comes back before MPs. He appeared not to rule out backing it. 

This was after PM May invited leading Brexiteers including Johnson to Chequers, her countryside retreat. Speculation suggests she failed again to secure support for her Withdrawal Agreement after allegedly refusing to be drawn on when she intends to resign from office.  

Speculation of a "palace coup" to replace Theresa May swirled at the weekend however, MPs in cabinet and parliament are powerless to evict the PM from office unless they are willing to abstain or vote against the government in a House of Commons no-confidence motion. 

This is because MPs, many of them supporters of remaining in the European Union, saved Theresa May from a party no-confidence ballot back in December. Surviving that vote gave her a 12-month grace period in which the parliamentary party cannot challenge her again. She could still choose to resign though.

"The Prime Minister has now agreed with the EU to kick the can down the road for another two weeks and humiliatingly revoke her oft-stated pledge that the U.K. would leave the EU on 29th March. Nothing has changed as far as the Withdrawal Agreement is concerned," says Nigel Dodds, deputy leader of the Democratic Unionist Party (DUP) of Northern Ireland. "The Prime Minister missed an opportunity at the EU Council." 

Not only does PM May still lack the support of Brexiteers in general, she has also so-far failed to bring the Democratic Unionist Party on board with her plans. As well as being key to Brexiteer votes in Westminster, they are also the Conservative Party's confidence and supply partner..

"As we have always said, negotiations with the EU inevitably go down to the wire and the Government has been far too willing to capitulate before securing the necessary changes which would get an agreement through the House of Commons. The Government has consistently settled for inferior compromises when they didn’t need to and when there was, and is, more negotiating with the EU to be done," Dodds says, in an official party statement.


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