Brexit Vote Looms: GBP/USD Traders Sit Tight as Theresa May Expected to Lose Vote

Traders Wary ahead of ‘Meaningful’ Brexit Vote this Evening

UPDATE: The Pound US Dollar exchange rate has dropped around 0.2% today and is trading at a rate of around $1.2852 as Theresa May attempts a last ditch effort to get MPs to back her Brexit agreement.

If the vote fails, which seems likely, it is unclear which way the GBP/USD exchange rate will go.

A number of pathways for action will open up, including the possibility of Brexit being postponed, a vote of no-confidence being motioned in the government or even a complete cancellation of Brexit altogether.

At this stage, Sterling traders are sitting tight and awaiting further guidance. The vote is set for 7pm, London time.

Pound to US Dollar Exchange Rate Volatility Worsens Ahead of Tuesday’s UK Parliament Brexit Vote

UPDATE: Demand for the Pound (GBP) briefly surged on Monday afternoon, amid reports suggesting that more Conservative MPs than expected may be prepared to support UK Prime Minister Theresa May’s Brexit deal.

The Brexit deal, which faces a UK Parliament vote tomorrow, was widely expected to not have the support needed to pass into UK law.

The Pound to US Dollar (GBP/USD) exchange rate jumped and briefly touched a new two-month-high, but as other reports indicated that Prime Minister May was still facing opposition from within her party Sterling’s gains were volatile.

Pound to US Dollar Exchange Rate Struggles to Rise Away from Opening Levels

UPDATE: Despite climbing earlier in the day, the Pound Sterling to US Dollar (GBP/USD) exchange rate trended closer to the week’s opening levels in the early afternoon as UK political developments continued to pile up ahead of tomorrow’s vote.

UK Conservative Party Chief Whip Gareth Johnson announced his resignation from the UK government due to his opposition to UK Prime Minister Theresa May’s Brexit deal.

This weighed on the Pound (GBP), but Sterling was also supported slightly by news that UK Prime Minister May had refused to rule out an extension to Article 50. This left GBP/USD volatile.

Pound US Dollar (GBP/USD) Exchange Rate Fluctuates as Both Currencies Volatile

Broad weakness in the US Dollar (USD) this year so far has made it easier for the Pound Sterling to US Dollar (GBP/USD) exchange rate to sustain gains, but the Pound’s (GBP) own Brexit-related weakness has meant those gains are limited.

Hopes for a Brexit delay saw the GBP/USD exchange rate surging by over a cent last week, and on Monday the pair briefly touched on its best level since November 2018.

Still, at the time of writing GBP/USD strength was limited and the pair trended closely to the week’s opening levels as both currencies failed to take advantage of the other currency’s weakness.

The Pound was supported by stronger signs that a delay to the formal Brexit date was becoming more likely, but market uncertainty ahead of Tuesday’s major UK Parliament vote on the UK government Brexit deal was keeping Sterling under pressure.

Similarly, the US Dollar has been volatile as lower Federal Reserve interest rate hike bets mean the US Dollar is unlikely to strengthen much soon.

Pound (GBP) Exchange Rates Fluctuate with Brexit Developments in Focus

The Pound (GBP) saw a strong boost in demand at the end of last week, as reports suggested that a formal delay to the Brexit process was being seen as more likely.

Sterling sustained most of those gains when markets opened on Monday, as EU officials indicated they were prepared to delay Article 50 and the formal Brexit leaving date until at least July. The current date is 29 March.

This has given the UK government some breathing room, however, as the news also amounts to ‘kicking the can’ further into the year, broad uncertainties about the Brexit outlook persist.

Tomorrow’s Commons vote on the Brexit process is still expected to end with a defeat for the government, which will leave the outlook in limbo.

US Dollar (USD) Selloff Running Out of Steam

For much of last week, perceived developments in US-China trade negotiations, as well as lower Federal Reserve interest rate hike bets, left investors selling the US Dollar (USD) following a strong 2018 demand for the safe haven currency.

As markets have now largely priced in fewer Federal Reserve interest rate hikes in 2019 and analysts highly doubt there will be any cuts, the US Dollar’s Fed-related losses may be coming to an end.

As investors stop selling the US Dollar on falling Fed bets, the currency is more likely to be influenced by global trade developments and domestic political news.

The US Dollar’s selloff from last week slowed amid a lack of fresh downside factors, and the currency steadied slightly. However, it was not appealing enough to take advantage of the Pound’s Brexit-related weakness.

Pound to US Dollar (GBP/USD) Exchange Rate Traders Brace for Tomorrow’s Brexit Vote

Tuesday could be the most pivotal event in months for the Brexit outlook and the Pound (GBP) – even though markets widely expect the outcome will simply be further uncertainty.

UK Prime Minister Theresa May is perceived as having failed to gather enough support to pass her negotiated UK-EU Brexit withdrawal deal through Parliament.

Assuming the deal is blocked, a phase of the UK government and other politicians attempting to find and reach a consensus on some other kind of resolution regarding Brexit will begin.

With some of the potential outcomes still on the table including a general election or a no-deal Brexit, investors are unlikely to have much reason to buy the Pound.

If upcoming US data impresses, this could give the US Dollar (USD) an opportunity to push GBP/USD lower. US import and export prices will come in on Wednesday, with production and consumer sentiment stats due on Friday.

Of course, with politics in focus this week, any developments regarding US-China negotiations or progress in the US government shutdown could also cause movement in the Pound to US Dollar (GBP/USD) exchange rate.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard