Pound Sterling Firms against Euro and Dollar, Markets eye Remain Alliance Plot to Bring Forward Brexit Extension Request
Above: Boris Johnson. File image. © The Naked Ape. Accessed Flickr, reproduced under Creative Commons licensing.
The British Pound starts the new week on the front foot, with gains coming against the majority of major global currencies as markets await fresh guidance on how the UK's dual Brexit and political crises will resolve.
The Pound-to-Euro exchange rate is quoted at 1.1249, up 0.17% on the day, while the Pound-to-Dollar exchange rate at 1.2307, up 0.13% on the day.
Sterling suffered a spell of selling last week as a multi-week winning streak finally snapped: it is however too soon to say whether the losses form the start of a broader decline, or whether they were a correction amidst a broader recovery.
For Sterling, we believe the most significant headlines on Monday involve fresh moves by the 'remain alliance' of political parties who are said to be plotting fresh measures to all but ensure Prime Minister Boris Johnson is unable to take the UK out of the EU on October 31 without a deal.
The Telegraph reports members of the Liberal Democrats, SNP, Greens, Plaid and the Independent Group for Change will meet Labour leader Jeremy Corbyn at 13:00 B.S.T. to pursue fresh measures to ensure Johnson cannot take the UK out of the EU without a deal.
The Pound has rallied over recent weeks on the view that a 'no deal' was becoming increasingly unlikely, with Parliament's passing of the Benn Act proving a significant driver of the gains. The Act requires the Prime Minister to request an extension of the EU if a deal has not been secured by October 19 thereby guarding against a 'no deal' which the majority of market analysts we follow would lead to disruption for the UK economy and trigger notable weakness in Sterling.
"Because of Boris Johnson's recent defeats, the probability of a no-deal scenario has decreased rather than increased, making a more pronounced depreciation of the British Pound less likely during the coming weeks," says Marc-André Fongern at MAF Global Forex.
Johnson has however steadfastly maintained his committment to take the UK out of the EU come what may on October 31, leading opposition parties to doubt how effective the measures they have thus far adopted really are.
Thus, further efforts to guarantee a 'no deal' Brexit might offer Sterling further support.
The Telegraph reports the 'remain alliance' believe the current deadline of October 19 does not leave enough time for a court challenge to stop a 'no deal' Brexit on Oct 31 if Johnson defies the law and refuses to ask for an extension.
The report adds the Liberal Democrats are arguing that the date of the request for an extension is brought forward to Saturday, October 05. There is a high likelihood that opposition parties could seize control of parliamentary business to enact such a law, as the Conservatives are in Manchester for their party conference.
Indeed, thanks to the conference, MPs opposed to Brexit will feel this week offers them a decent window within which to move. Another route forward would be for opposition parties to settle on an interim leader to replace Johnson and request a Brexit extension.
The only road-block to such an outcome is Jeremy Corbyn, who says it is his role as leader of the opposition to assume the role as caretaker Prime Minister. However, if he were to agree to step aside, then a replacement Government might loom.
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While the Pound has rallied on the efforts of MPs to thwart a 'no deal' Brexit, we also note that there has been notable upside impetus on the market's view that progress towards a deal is being made.
We remain of the view that only a deal would unlock the longer-term and sustainable gains those wanting a stronger Sterling would welcome. Of all the Brexit options that lie ahead, the securing of a deal offers the most by the way of closure to the current Brexit divide while offering businesses some much-needed certainty.
On this front, Monday headlines are supportive of the Pound.
The Times reports Johnson will know the European Union’s verdict on his plans for a Brexit deal by the end of next week.
The government will make its official offer to Brussels in the form of a "legal text" at the beginning of next week before any formal negotiations.
According to the report, "the proposal is expected to include further concessions to address EU concerns over its plans for the Irish border."
The Times quotes sources as saying they expected to enter into a "tunnel" of secret negotiations after the offers had been made if there was any likelihood of a deal.
"The more you hear, the less likelihood there is of a deal," the source told The Times. "We’ll know by the end of next week [that it is off], if we are seeing leaks."
Of course all progress on a Brexit deal might come to nought if the 'remain alliance' this week succeed in overthrowing the Government. We believe this is to be the week's key risk for Sterling.
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