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Sterling finds meaning in tonight’s vote

Sterling finds meaning in tonight’s vote

Prime Minister Theresa May is set to update parliament on any progress towards securing a Brexit deal tonight. A debate and vote will follow, though not a ‘meaningful one’, which will now have to wait till no later than 12th March.

Key developments so far this week

  • A flurry of measures from Theresa May earlier in the week has provided Parliament with three-options
  1. The 12th March Brexit deal vote
  2. A vote on no deal on 13th March
  3. A vote on a “short, limited” extension of Britain’s Article 50 negotiating period
  • Labour moves closer to outright call for another referendum
  1. Labour’s Jeremy Corbyn said even a Brexit deal approved by Parliament should be put to “confirmatory” public vote

How meaningful?

Whilst Theresa May has postponed the ‘meaningful’ aspect of tonight’s votes, a key question is whether Wednesday’s votes could turn out to be meaningful anyway. To be sure, the Brexit deal won’t be debated directly. Instead, the government’s own motion will be the official focus: "This House notes the Prime Minister's statement on EU exit of 26 February 2019; and further notes that discussions between the UK and the EU are ongoing." However, amendments are the main feature of tonight’s proceedings, even if their outcomes won’t be legally binding. And at least one amendment could raise serious questions about the government’s ability to continue steering the Brexit process, if passed.

Amendments selected to be voted this evening

Backing off

In reality though, none of the motions are likely to secure sufficient cross-party support to be carried. Pro-EU Conservatives have signaled that they will not press Theresa May, on this occasion, for cast iron guarantees that she will honour her latest ‘meaningful vote’ pledge. It’s also notable that a prior amendment that received much attention during a previous vote has not made a return. The amendment by Labour’s Yvette Cooper had called for Parliament to demand an Article 50 extension. It was defeated when voted on at the end of January. Initially, she indicated that she would table the plan again, possibly in a slightly different form. More recently however, she has backed the Spelman/Dromey amendment.

Sterling sails

Though the wind has gone from the sails of forces that could wrest control of Brexit from the government, sterling is holding near 6-month highs as tonight’s vote approaches. This follows significant dips in volatility implied by options trades. These are even more indicative because demand for protection against or speculation on sharp swings has fallen across all time frames, from short- to long-term. There has been a mild bounce from earlier lows, but the signal that more market-friendly outcomes than feared are now more likely, is clear. Still, with huge uncertainty remaining and byzantine politics set to intensify as Britain’s planned EU exit draws nearer, a rebound in broad volatility expectations can’t be ruled out. Much depends on developments leading up to the votes planned on or before 12th, 13th and 14th March. With time ticking down to Britain’s planned exit planned on 29th March and Parliament’s backing for a deal still difficult to secure, the chances of a postponed departure appear to be rising, but little is certain.

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