Pound Sterling Under Pressure Again on Reports of German Veto on Brexit Extension, Corbyn Back on the Fence over 2nd Referendum
Above: German Chancellor Angela Merkel and European Council President Donald Tusk. File photograph © European Union
- Snapshot: GBP/EUR: 1.1318 -0.19% | GBP/USD: 1.2592 -0.30%
"Pound just can't catch a break" - Markets.com
- Germany said to veto any further Brexit extensions
- Corbyn confirms Labour won't back 2nd EU referendum
The British Pound finds itself under pressure once more in the approach to the end of what has been a tough month for the currency.
The fresh declines, which come after a four-day hiatus from the month-long selloff, come admist the latest set of Brexit developments.
Currency markets will be digesting news the Labour Party's position on a second referendum has, in fact, not changed after days of speculation and that a German veto to any further extension of Brexit is likely.
Perhaps the most significant of the two is the breaking story from the Telegraph's Brexit and Europe Correspondent James Rothwell who says there will almost certainly be no extension to Brexit from beyond October 31.
"I'm told Germany will veto an extension to Article 50 at the next EU summit in October unless the UK makes major progress, such as announcing a general election or a second referendum," says Rothwell.
It is reported that another extension would be granted only if it were to allow for a second EU referendum.
This is significant in that perhaps the only sure-fire way for Parliament to prevent a 'no deal' Brexit is to delay it.
There is an assumption that because there is a Parliamentary majority against a 'no deal' Brexit that such an outcome cannot come to pass. Over recent months the expression of Parliament's will to avoid a 'no deal' has been via the commanding of Theresa May's government to seek an extension to the Article 50 process.
Well, if Parliament can't vote to extend Brexit then it becomes increasingly difficult to see what power Parliament actually has to prevent a 'no deal'.
Therefore, if these reports are true then the odds of a 'no deal' have certainly increased.
This should weigh on Sterling going forward we believe, or at least keep any recoveries capped.
The Pound-to-Euro exchange rate has fallen from levels above 1.17 at the start of the month to quote in the 1.13s at present, a decline that is widely seen as being as a result of the realisation that a negotiated Brexit deal was not likely.
The Pound-to-Dollar exchange rate has meanwhile fallen from a high of 1.3177 down to current levels at 1.2627.
"The Pound just can’t catch a break. No-deal Brexit fears continue to weigh on Sterling, whilst Dollar strength looks to be the catalyst for dragging it lower," says Neil Wilson, analyst at Markets.com. "This afternoon the Pound slipped under the May 23rd trough to its lowest since January ahead of the 4pm fix, before paring some of the losses."
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Labour Refuse to Get off the Fence
The second developing story concerns the Labour Party leader Jeremy Corbyn who has firmly stated there will be no rerun of the EU referendum.
The comments made on a visit to Ireland contrast sharply to reports out earlier this week that appear to have been designed to pave the way for the opposition party to back a second vote on EU membership following the drubbing received in last week's EU elections.
Various media were reporting at the start of the week that Corbyn would announce Labour were adopting a more clear-cut policy on Brexit and that stance would be the backing of a referendum.
We saw this as a development that would potentially put a firm floor under the Pound.
Corbyn however says today that any deal that does get through parliament must instead be put to a public vote.
The party's first priority remains the seeking of a General Election.
In short, Labour's stance has not shifted, suggesting Corbyn is not yet ready to alienate the party's membership who want a second EU vote from the party's core heartland voters who voted for Brexit.
We believe were Labour to offer a second EU referendum as a matter of policy then there would be a strong chance a second vote takes place.
This is based on the premise that the next leader of the Conservative Party would face a vote of no confidence in parliament, and if that leader were keen to deliver a 'no deal' Brexit the vote of no confidence would succeed on the back of the votes of 'remainer' Conservative MPs opposed to such an outcome.
Labour would need not win any resultant election outright, rather they would merely need to head up a coalition - or govern on a confidence and supply agreement - with other parties.
The likely partners to such an agreement would be the Liberal Democrats, the Greens and the SNP: all support a second EU referendum and all would almost certainly demand a second vote as the price of their support.
The Pound has shown it appreciates when the prospect of 'no deal' Brexit diminishes, but some analysts say it would appreciate materially were the prospect of Brexit being reversed entirely increase in probability.
Labour's decision to 'sit on the fence' therefore pares back the probability of a second EU referendum taking place.
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