Pound Sterling Latest: Emergency Debate Sought by Labour, Pound Holds Key Levels vs. Euro and Dollar Despite Heightened Political Angst
Above: Leader of the House of Commons, Jacob Rees-Mogg, says there are two options available to MPs that will prevent a 'no deal' Brexit on October 31. File photo. Image: REUTERS/Toby Melville
- Labour to bring emergency debate next week
- Sterling remains resillient to political upheaval
- Analysts see heightened volatility over coming weeks
Pound Sterling is looking more assured on Thursday, August 29 with foreign exchange traders opting to await details on what steps MPs opposed to Brexit will take when parliament opens next week.
The Labour Party have today indicated they seek an emergency debate on Brexit next week, but they are yet to offer information as to whether a no-confidence vote will be called in the government.
"On Monday, we will introduce what is known as a Standing Order Section 24 Motion and that would be to try and have an emergency debate," Barry Gardiner, Labour's trade spokesperson told Sky News.
The moves by Labour come amidst heightened political tensions in the UK following Prime Minister Boris Johnson's decision to suspend parliament for a month, starting on September 12. Johnson argues the move is entirely normal and within constitutional bounds; it has however stoked anger amongst those MPs who want the UK to remain in the EU.
"Is there a method to Johnson’s madness? There may be," says Marshall Gittler, a strategist with ACLS Global. "He probably believes that the main reason the EU isn’t giving in over the issue of the Irish backstop is the hope that Parliament will somehow stop the Brexit process and ask for an extension or even cancel the whole thing. By removing that hope, he puts more pressure on the EU to compromise."
"The GBP dropped sharply yesterday after the announcement that the UK parliament will be prorogued in the second week of September until the 14th October. The move gives parliamentary opponents of a ‘no deal’ Brexit only a small window to block such an exit on 31st October. Markets will now looks for opposition parties’ reactions when parliament returns next week," says Robin Wilkin, a cross-asset strategist with Lloyds Bank.
The Pound-to-Euro exchange rate slipped to 1.0963 when news of the government's intention to suspend parliament was announced, before recovering back to today's levels around 1.1017.
The Pound-to-Dollar exchange rate slipped to a low of 1.2158 before recovering back to levels just above 1.22.
One noted City analyst tells us that the Pound should find itself facing further downside following recent developments. "GBP is expected to come under renewed selling pressure as the suspension of Parliament is widely seen as increasing the risk of a no-deal Brexit," says Hans Redeker, a foreign exchange analyst with Morgan Stanley.
Redeker says GBP/USD is likely to break the 1.2060/1.2015 support, opening up potential decline to 1.15.
However short-term sees the Pound relatively well supported.
That Sterling did not plummet suggests markets are not seeing anything in the decision to suspend parliament that materially alters the Brexit picture, as such traders remain on the lookout for any new information that shifts the Brexit / 'no Brexit' balance.
MPs opposed to Brexit were looking to utilise the coming weeks to seek legislation that would prevent Brexit happening on October 31 in the event of no Brexit deal being ratified. A majority in parliament are opposed to leaving the EU without a deal, but at the same time parliament has failed to vote for a deal.
Sterling will continue to take cues from political developments, as such we expect the week commencing September 02 to be a volatile one for the currency as parliament sits again on September 03.
Leader of the House of Commons Jacob Rees-Mogg has today said MPs who want to stop a 'no deal' Brexit have two choices: change the law or change the government, and if they fail to choose, Britain will leave the European Union on October 31.
"All these people who are wailing and gnashing of teeth know that there are two ways of doing what they want to do," Rees-Mogg said in an interview with the BBC. "One, is to change the government and the other is to change the law. If they do either of those will that will then have an effect."
"If they don't have either the courage or the gumption to do either of those then we will leave on the 31st of October in accordance with the referendum result," adds Rees-Mogg.
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We feel the prospects of a no-confidence vote in the government has risen given the shrinking of the time available to MPs within which they can seek to pass legislation that would prevent a 'no deal' Brexit taking place.
The prerogative to call a no-confidence vote lies with the leader of the opposition, Jeremy Corbyn.
Corbyn has for a long time stated he would call a no-confidence vote "when the time is right".
Could recent developments finally push his hand? We believe the prospect of such an outcome is now more likely than has been the case for some time.
"We believe that this ultimately raises the likelihood of the opposition to call for a no-confidence vote. The Pound weakened against USD and EUR, but not to the levels of maximum hard Brexit angst seen earlier this month," says David Meier, an economist with Julius Baer, the Swiss investment bank. "The GBP did not show full hard-Brexit angst. We stick to our constructive outlook."
Julius Baer are forecasting the Pound-to-Euro exchange rate to trade at 1.09 in three months and 1.16 in six months. The bullish outlook adopted by Julius Baer on the long-term horizon rests largely on the assumption that a Brexit deal will be reached, an outcome to which they attach a 60% probability.
A 'no deal' Brexit is given a 10% probability.
However, Meier warns that the road ahead for Sterling will be difficult in the short-term, "yesterday and today’s events are a foretaste of the volatility that awaits us this fall."
If the government were to lose a no-confidence vote next week, a fresh injection of uncertainty would be injected into Sterling markets, and the currency could fall. But were the vote to be avoided, or won by the government, Sterling would remain supported near-term.
"If no-vote/election risks can be averted, GBP might find some support. However, the risks remain high and hopes of any deal with EU-27 are low. Uncertainty will dominate in the coming week and weigh on a likely volatile GBP," says Tim Riddell, a strategist with Westpac in London.
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