Pound rises against the dollar ahead of crunch Brexit vote as markets in Asia weigh up if a bitter defeat for May will delay Britain’s exit from the EU
- Sterling rose 0.3 per cent against the dollar before slightly falling back to $1.289
- Markets in Hong Kong and Japan traded this morning ahead of 7pm crunch vote
- By 10am today, pound was at $1.2868 compared to $1.2870 at the previous close
- Meanwhile the FTSE 100 index at 10.45am this morning was up 13.52 at 6868.54
The pound edged fractionally higher this morning as Asian markets weighed up what the next 24 hours could mean for Prime Minister Theresa May’s Brexit deal.
Sterling rose 0.3 per cent against the dollar before slightly falling back to $1.289 as markets in Hong Kong and Japan traded ahead of the crunch vote from 7pm.
By 10am today, the pound was at $1.2868 compared to $1.2870 at the previous close, while the euro was £0.8896 compared to £0.8917 at the previous close.
Sterling rose 0.3 per cent against the dollar before slightly falling back to $1.289 as the Asian markets traded this morning. The exchange rate is pictured over the past 24 hours
The pound’s resilience was in contrast to warnings of chaos and uncertainty in the UK if MPs reject the Withdrawal Agreement in the Commons.
According to some reports Mrs May could face a historic defeat, raising the possibility of a no-deal Brexit or the departure not happening at all.
Sterling’s marginal gain came against a background of concerns over world growth, Chinese trade data and the ongoing government shutdown in the US.
Meanwhile the FTSE 100 index at 10.45am this morning was up 13.52 at 6868.54.
Neil Wilson, chief market analyst at Markets.com, said that whatever the outcome, traders should expect ‘considerable volatility’ as news flow dictates price action.
A trader looks at monitors in a foreign exchange dealing room today in Seoul, South Korea
He added: ‘The question is whether the imminent disorder is fully priced.
What will happen to the pound after tonight’s vote in Westminster?
Number crunchers at ING have outlined a series of scenarios for the pound following the vote.
In the unlikely event that Mrs May’s deal passes, sterling will rally to $1.38, according to the bank.
If a general election is called, which is also unlikely, the pound would plummet to $1.20 and if a Norway-type arrangement is agreed, it would rise to $1.35.
A second referendum would see the British currency jump to $1.40.
However, all three latter scenarios require an extension of Article 50.
If a no deal hard Brexit comes to pass, then ING reckons sterling would tank to $1.12 and hit parity with the euro.
‘It seems unlikely that the market really reflects where we are about to go on Brexit, albeit the lie of the land is more favourable for pound bulls longer term, i.e. a higher chance of a no-Brexit or very soft Brexit.
‘Extension of Article 50 seems likely if this deal fails and Jeremy Corbyn manages to force an election.
‘But similarly, the no-deal risks rise by the day with March 29 just a couple of months away. As previously argued, the either of the extremes is still the most likely outcome.’
Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Japan, said: ‘Markets have priced in a rejection of May’s plan.
‘There are many scenarios after that. Still I’d think the most likely outcome is to extend the (March 29) deadline of Brexit.
Currency option markets are barely pricing in the chances of sharp moves in sterling. The pound’s one-month implied volatility stood at 12.5 per cent.
This was above the average for the past year of 8.8 percent, and well off 20-percent plus levels seen in the days just before the EU referendum in June 2016.
Currency traders watch monitors at a foreign exchange dealing room in Seoul this morning
Michael Hewson, chief market analyst at CMC Markets, told This Is Money: ‘The pound is set for a potentially choppy next few days.
‘It’s been suggested that if the PM loses the vote badly, which looks highly likely, she would have to step down, though it’s not immediately clear who would replace her.
‘The PM was at pains to set out yesterday that if the deal is voted down later this evening then there would be the real possibility that Brexit may well not take place.
‘The pound also appears to be trading on that basis given yesterday’s sharp move higher on a report that the Conservative Eurosceptic ERG group might vote for the deal.’