British Pound Up as Supreme Court Rules Govt. Unlawfully Shut Down Parliament
Above: Lady Hale. Still Courtesy of BBC News
- Supreme Court rules Govt. was wrong to suspend parliament
- Any volatility in Sterling to ruling tipped to be short-lived
- Talk of no-confidence vote being called Wednesday
- Brexit negotiations yet to reach a breakthrough
- Expect currency traders to adopt wait-and-see approach to Sterling
Pound Sterling was seen going higher against the Euro and U.S. Dollar following the unanimous Supreme Court finding that the UK government was in breach of its power in shutting down Parliament.
The 11 sitting justices found that, "it is impossible for us to conclude, on the evidence which has been put before us, that there was any reason - let alone a good reason - to advise Her Majesty to prorogue Parliament for five weeks. We cannot speculate, in the absence of further evidence, upon what such reasons might have been. It follows that the decision was unlawful."
As a result "proroguation is null and of no effect," said Supreme Court President Lady Hale. Speaker of the House of Commons John Bercow has confirmed Parliament will sit from 11:30 AM on Wednesday.
The Pound popped higher on the result on the view that Parliament provides a guard against a 'no deal' Brexit taking place. In short, Prime Minister Johnson's ability to deliver a Brexit at all costs on October 31 has been further hampered.
"The market and the algos will likely see a ruling against the government as Sterling-positive," says Neil Wilson, Chief Market Analyst at Markets.com. Any rally or drop is likely to be faded."
Following the news, the Pound-to-Dollar exchange rate is quoted at 1.2460, having been as low as 1.2440 earlier in the day. The Pound-to-Euro exchange rate was quoted at 1.1340, having been lower than 1.13 ahead of the decision.
"Boris Johnson is coming under increasing political pressure, and so is his strategy. For the time being, this is good news for the British Pound," says Marc-André Fongern, analyst at MAF Global Forex.
"Anything that works against Boris but works in favour for rebel MPs, decreases the market odds of a hard Brexit. It’s why GBP edges higher as a result," says Jordan Rochester, foreign exchange strategist with Nomura.
The Telegraph's Political Correspondent Harry Yorke reports a senior Labour shadow minister said it would be "unthinkable" if Labour Party leader Jeremy Corbyn did not put forward a no-confidence vote in the Prime Minister.
They suggest the Labour leader could table the motion as early as tomorrow, with MPs due to return to the Commons at 11.30am.
Noting that the Prime Minister's Conservative Government does not command a majority in the House of Commons, we would expect the opposition to win.
This would then see it fall upon the opposition to form a transitional government that would likely request a Brexit extension from the EU to conduct a fresh General Election.
Indeed, this is something Johnson appears to be angling for.
"We should have an election," Johnson told reporters on the side of the UN General Assembly in New York.
Barclays Research say 'no deal' Brexit is base-case scenario, expect "a sharp depreciation in GBP to accompany the initial stages of a no-deal Brexit and forecast a low of 1.10 in #GBPUSD and high of 0.97 in #EURGBP." pic.twitter.com/NWzh32qcvQ
— The Pound Live (@thepoundlive) September 24, 2019
Markets have thus far tended to view Parliament's successes against the executive as being pro-Sterling, but we wonder what today's developments mean for the achievement of a Brexit deal.
For us, and many analysts, the key to a truly sustainable rally in Sterling was always the achievement of a Brexit deal, as this was the single option that offered the most by way of long-term stability for UK politics, and the economy.
There are questions as to whether the recent progress made by UK and EU negotiators will come to a screeching halt following today's events.
Johnson's time in office could be coming to an abrupt end, and with it his progress on securing a revised deal, and we would assume the Conservatives will campaign on a more robust Brexit manifesto that could ultimately see them vacuum voters away from the Brexit Party and allow them to win an outright Commons majority.
Indeed, it is arguable that the route to a 'no deal' has become clearer. We wonder if there is a risk foreign exchange markets might at some point adopt this view.
If they do, Sterling could come under pressure once more.
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Slow but Steady Progress towards a Deal
The 'mood music' from the EU side has certainly improved, with the EU agreeing to reopen negotiations and agree to the UK's demands to have the issue of the Northern Ireland border 'backstop' replaced by alternatives.
On the sidelines of the ongoing UN General Assembly Johnson told European Council President Donald Tusk that movement and flexibility were needed from the European Union if a Brexit deal is to be reached, a British government spokeswoman said.
Johnson and Tusk discussed progress in talks between the EU and UK on finding an alternative to the Irish backstop, the spokeswoman said.
"The prime minister emphasised that in order to secure a deal we will now need to see movement and flexibility from the EU," she said, adding that the leaders had agreed to keep in touch over the coming weeks.
Following the meeting, Tusk said there was "no breakthrough," but neither was there a "breakdown" and that there remains "no time to lose".
Irish Taoiseach Leo Varadkar is set to meet Johnson on Tuesday, and said on Monday he would not accept "any halfway house" short of legally binding assurances on the Irish border according to RTE.
Varadkar told journalists his message for Johnson “is the message (that it has been) all along: the bottom line is that we need a legally binding assurance of no hard border, and the all-island economy can continue ... we won’t accept any halfway house," Virgin TV News reporter Gavan Reilly tweeted.
Negotiations between the two sides are ongoing, with UK Brexit negotiator Stephen Barclay repeating the need to reach a deal that excludes the 'backstop', saying his government needs an agreement Parliament would pass.
Speaking in Prague after meeting the Czech interior minister, Barclay also said his country was committed to leaving with a deal because doing so without one would be disruptive.
"The teams are meeting again this week because both sides recognise that is in both interests to secure a deal. So that is what we are working on but it has to be a deal without the backstop," Barclay said.
However, the EU's chief negotiator Michel Barnier said on Monday it was difficult to see a way to break the Brexit impasse as Johnson's demand to drop the backstop was unacceptable.
"I am sure you understand this is unacceptable," Barnier said of dropping the backstop, during a news conference in Berlin alongside German Foreign Minister Heiko Maas.
EU sources said no proper alternative for the border between Northern Ireland and Ireland that ensures the integrity of the EU single market and customs union has been proposed yet by the UK.
"Based on current UK thinking, it is difficult to see how we can arrive at a legally operative solution which fulfils all the objectives of the backstop. It is in a very sensitive and difficult phase," said Barnier.
What is clear is that negotiations are ongoing, and there is political will.
Foreign exchange traders are likely to adopt a wait-and-see approach to Sterling in the current environment, and it is therefore probably not surprising to note that the Pound is trading close to the mid-point of a long-term range against the Euro.
We expect more of the same until some real clarity emerges.
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