Daily Brexit update: Why sterling isn’t falling off a cliff

Despite a likely defeat of the Brexit Bill next week, sterling's resilient.

Daily Brexit update: Why sterling isn’t falling off a cliff

Despite an increasingly likely defeat of the Brexit Bill next week, sterling looks resilient. Traded against the dollar, the pound is rounding off the North American session down 40 odd pips, but that’s still fully 2.4% higher since lows on 2nd January. Sterling got going against the euro a bit slower last week but had advanced as much as 143 pips above 4th January’s low by the middle of Europe’s session before softening again. Even as a terrible week in British retail unfolds, sterling isn’t exactly falling off a cliff. Shares in multiple high-profile firms saw double-digit percentage losses on Thursday alone as consumers grow more cautious, partly on Brexit uncertainty. At the same time, the opposition Labour Party is pushing harder for a general election if Parliament votes against Theresa May’s Brexit deal. Labour leader Jeremy Corbyn is also increasing calls for a fresh referendum, but the risk that a he could lead the next government is generally regarded as a negative for sterling, given nationalisation policies and others that could deepen the budget deficit. In short, sterling is proving remarkably robust for now and this shows in the highly sensitive options market. Earlier this week, premiums for expiries under one month projected the lowest risk of sharp moves against the dollar in six months.

The key to the market’s growing ease appears to be signs that Parliament is taking a tougher line. That was most obviously expressed this week by votes that sharply weaken Downing Street’s power to push through a no-deal Brexit. The next five days still promise to be some of the most unpredictable seen in British politics for years. But chances that the market’s worst fears will be realised are clearly declining.


Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.