Whilst many market participants have been prepared for a far higher degree of cross-market volatility than has actually transpired so far, it is the level of domestic political flux that has taken many off guard. As such, those who want more ferocious fireworks to trade might well get their wish as the Westminster Brexit merry go-round goes into overdrive. Just hours ago, sterling traders were standing down hopes that the pound could span heights higher than four-month highs around $1.32 marked earlier. But after further dizzying developments the government not only pledged a vote on a ‘no-deal’ Brexit vs. a delayed Brexit but it also attached a refinement that could drag forward the vote far sooner than a putative 13th March deadline. The news re-charged the pound’s legs in classic fashion enabling the rate against the dollar to cut its emerging retracement short before extending gains to five-month highs that scraped $1.33.
We can summarise the key official government comments so far on Tuesday as the following:
- Downing Street says Parliament will debate and vote on this Wednesday a government motion saying Parliament has noted Prime Minister Theresa May's statement on Brexit and that negotiations are continuing
- Prime Minister Theresa May’s spokesman says the government will hold the no-deal vote “by 13th March”. This means the vote could be held sooner if there is an unsuccessful meaningful vote before 12th March
The turnaround by sterling, which clearly began to flag after a speech by the Prime Minister promised little more than a further delay of the meaningful vote, reiterates the market’s bias for circumstances that could throw Brexit off the course set by the government, perhaps permanently. With the Labour’s key amendment gaining even more currency and still set to be voted on during Wednesday and the party also approaching the point of no return for a second referendum, it’s a lot more difficult to call limits on sterling upside than earlier in the afternoon. Beyond that, after participants’ efforts to avoid euphoria evaporated at the first sight of market-friendly news, logically, the come down could be even more painful than previously thought. Depending on the rapidity of its retracement, sterling against the dollar should aim to test former solid resistance of $1.3217 that may have transformed into support. 20th September’s $1.3298 cycle high is the next upside objective. Minutes before publication, sterling was 144 pips up on the day at $1.3240.
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