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Pound back near 3-month highs ahead of Brexit vote

15:17 29 January 2019

Summary:

  • GBPUSD near $1.32 handle as traders eye another key Brexit vote

  • MPs will vote on PM May’s “plan B” around 7PM (GMT)

  • Unlikely to pass but amendments could be the key market driver

 

Just two weeks on from the heaviest ever parliamentary defeat for government, shortly after 7PM this evening Prime Minister Theresa May will once more ask the House of Commons to vote on her withdrawal agreement. This “plan B” looks an awful lot like the “plan A” which was so comprehensively rejected last time out by a margin of 230 votes, and at the risk of stating the obvious it is highly unlikely to gain the required support this time around.

The Pound is making steady gains against all its major peers today, with the largest appreciation seen against the Swiss Franc. Source: xStation

 

The pound sold-off in the run up to the previous vote and made a low around 1.2670 just minutes after the result was announced, but the subsequent reaction has been pretty telling with the market embarking on a sizable rally of around 4% since and currently trading near the 1.32 handle. This move can be attributed to the growing feeling that a no-deal scenario will be averted, and this brings us to the importance of the amendments in today’s vote.

The GBP/USD rate has rallied fairly strongly in the past couple of weeks since PM May’s deal was rejected. The market is now close to its highest level since October and not far from the $1.32 handle. While there is much that can go wrong for the pound, the price action remains constructive and as long as the market remains above $1.30 then the path of least resistance appears to remain to be higher. Source: xStation

 

This afternoon, the speaker of the house John Bercow has confirmed that the following 7 amendments will be voted on:

 
  • Jeremy Corbyn

  • Ian Blackford

  • Dominic Grieve

  • Yvette Cooper

  • Rachel Reeves

  • Caroline Spelman

  • Graham Brady

 

All these amendments could be seen as important in their own right but the 3 that follow warrant a deeper discussion. Each of these represents a move towards a potential ultimate goal, which is shown in parenthesis.

 

Grieve (Take control of Brexit process)

This amendment by Dominic Grieve would pave the way for MPs to consider alternatives to the current deal proposed by PM May, including a possible Norway+ model which would see the UK remain in the single market and customs union and maybe even a second Brexit referendum. The voting here is also expected to be tight, with many favouring it but some Conservative MPs likely reluctant to oppose Mrs May.   

 

Cooper (Stop no deal):

Arguably the most important of all the proposals has been put forward by Yvette Cooper. This would set a 26th February deadline for PM May to secure parliamentary approval for a Brexit deal, after which MPs would look to extend Article 50. The current Article 50 deadline is the end of March and this proposal would seek a 9-month extension which would take us to year-end. This is seen as being too close to call, with clear support for this amendment but whether there will be enough remains to be seen.    

 

Brady (Salvage May’s deal):

This is clearly one of the most notable amendments and put forward by graham Brady, chair of the 1922 committee of backbench Conservative MPs. This motion in essence would remove the Irish backstop and seek “alternative arrangements to avoid a hard border.” If approved Sir Graham said the amendment would give Mrs May tremendous firepower in Brussels to change the backstop. However, it will rely heavily on support from the ERG which counts as many as 60 Conservative MPs as members.

 

 

 

  

 

 

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