Sterling Exchange Rates Calm before this Evening’s Crunch Vote
The Pound (GBP) is trading in a narrow range so far today, but this is largely expected to be the calm before the storm, with this evening’s crunch Brexit vote expected to prompt significant volatility in Sterling as well as on the wider currency market.
In such a risky environment, many traders are choosing not to trade in Sterling today, hence the lack of movement.
What is the Parliamentary Vote All About?
This evening’s ‘meaningful vote’ on Theresa May’s EU withdrawal deal is seen as a key point in the whole Brexit process and will have far reaching consequences for both Brexit and the Pound.
After months of back and forth, May was finally able to reach an agreement with the EU late last year on the manner in which the UK will leave the EU, as well as a declaration on how the future relationship would work.
However, the deal itself has gone down like a lead balloon with MPs, both pro-EU and pro-Brexit, lambasting it for being the ‘worst of both worlds’.
With this in mind, it’s no surprise that MPs are widely expected to vote down the deal when it is finally put before the House of Commons later this evening after being previously delayed in December as May sought to salvage it.
But while the outcome of the vote appear to be set in stone, its impact on Sterling remains unclear.
So what are some of the potential outcomes for Brexit following the vote and how may they impact the Pound?
GBP Forecast: What Next for Brexit and the Pound?
Following the vote there are a number of different scenarios that may play out, all of which are likely to influence the Pound in various ways.
The first and apparently most unlikely result is that May’s deal miraculously passes – something that would be expected to give a boost to Sterling as it provides clarity to investors and is ultimately seen as a ‘softer’ Brexit.
If the deal is rejected, however, things becomes a bit more muddled, as observers predict a range of different Brexit outcomes.
The most Sterling-negative outcome is if the UK crashes out of the EU without a deal, with a no-deal Brexit being the default outcome if MPs cannot agree to an alternative plan.
Also likely to place pressure on GBP exchange rates is the uncertainty that comes from a potential General Election, which is a possibility if some Conservative/DUP MPs back a no-confidence vote in the government. Such a motion is expected to be tabled by Labour in the wake of a government defeat this evening.
However, a rejection of the vote may also prove positive for the Pound if investors believe it will lead to a delay to Brexit or potentially even resulting in the UK remaining within the EU – it all depends on the margin of loss with the vote.
Some analysts are predicting that the Pound will rise if Theresa May loses the vote in the Commons today, primarily because it then opens up a number of new pathways for action.
Another such pathway would be the revoking on Article 50, which the European Court of Justice recently confirmed is legally feasible, giving UK policymakers breathing space to formulate new policy and potentially even allow for more negotiations with the EU, which are currently set to end on 29 March.
Ultimately the only thing that appears clear is that the Pound is in for further volatility whatever happens this evening.