Above: Prime Minister Theresa May responds to a series of defeats to the government in the House of Commons. Image (C) Parliament TV.
- Sterling jumps to record fresh multi-month highs vs. Euro
- Government suffers two defeats on Wednesday night
- Parliament asks government to rule out 'no deal' Brexit permanently
UK lawmakers have voted to hypothetically take a 'no deal' Brexit off the table 'for ever' in a night of bruising losses for the government in the House of Commons that corresponded with another sharp rally in the value of the British Pound.
The night's votes were aimed at seeking to establish whether the UK parliament should back a 'no deal' Brexit, and lawmakers gave a resounding answer.
The first motion which called for an indefinite rejection of a 'no deal' Brexit - which was not backed by the government - was unexpectedly passed by 312 to 308, a tight victory for 'remainers' and opposition parties. While not good for Prime Minister Theresa May and her government, and we are told this outcome is a positive for Sterling as it cements the notion that there is no political appetite for a 'no deal' Brexit to take place.
"A big win for the Pound - majority of MPs choosing economic rationale over party politics = reduction in risk premium. Also increases odds of getting certainty one way or the other (a deal or a push to avoid Brexit altogether)," says Viraj Patel, an analyst with Arkera in London.
The vote is not binding and therefore has no impact on Government policy, but it does have a 'moral' bind on the government.
The result certainly undermines the authority of May and her government which instructed its MPs to vote against the amendment and political commentators are saying the outcome is unexpected.
Amber Rudd, the work and pensions secretary, David Gauke, the justice secretary, Greg Clark, the business secretary and David Mundell, the Scottish secretary, were among the those government ministers who abstained, and ultimately saw the government lose the vote. Claire Perry, who attends cabinet as business minister also abstained while Sarah Newton, a junior welfare minister, quit the government to vote for the amendment.
The second vote for the night - which would have seen parliament request government delay Brexit to May 22 - was defeated by a heavy margin.
On the third vote of the night, parliament voted by a majority of 43 to rule out a 'no deal' Brexit. Note, that because the government lost the first motion unexpectedly, it was forced into suddenly whipping its MPs into voting against the motion. Thus, the government suffered its second loss of the night.
In response to the vote, Prime Minister Theresa May reminded the House of Commons "the legal default remains that the UK leaves without a deal unless something else is agreed."
The votes come as Pound Sterling is seen staging its largest one-day advance of 2019 to date, and the outcome of the votes will likely cement these gains. The Pound-to-Euro exchange rate was quoted as high as 1.18 in the wake fo the votes, but gains have since been pared back to 1.1705 at the time of writing. The Pound-to-Dollar exchange rate went as high as 1.3378, before paring gains back to 1.3250 at the time of writing.
Above: Sterling takes another leg higher against the Euro in the wake of parliament's vote to permanently rule out a 'no deal' Brexit deal.
"This is such an important moment for the Pound. Effectively renders any scenario of a disorderly decline in GBP/USD as null. Won't necessarily see GBP rally. But should offer strong support for the Pound going forward," says Arkera's Patel.
Sterling swung from losses to gains ahead of the midweek votes in the British Parliament that were widely expected to reject leaving the EU without a comprehensive withdrawal agreement.
The Pound's swing higher comes off the declines suffered on Tuesday after Attorney General Geoffrey Cox effectively killed off the EU-UK Brexit deal when he gave legal advice that suggested the UK could be trapped in the EU's custom union and single market indefinitely, even after a series of concessions won by Prime Minister Theresa May in Strasbourg on Monday night.
The currency has however recovered ground as markets buy into the view parliament will ultimately steer the UK towards a softer-style Brexit.
"Despite all the Brexit confusion, the Pound continues to take its broad cues from an expectation that Britain might ultimately vacate the EU with a trade agreement, the orderly route seen limiting economic fallout," says Joe Manimbo, a foreign exchange analyst at Western Union. "Delaying Brexit could open the door to potentially more pound-positive outcomes such as a soft Brexit or a second referendum."
Above: If we take a step back, Sterling is actually knocking its head against a ceiling against the Euro despite its recent recovery.
Attention now turns to Thursday's votes on requesting an extension to Brexit, which based on today's votes, will almost certainly sail through.
"We now expect an Article 50 extension, and our economists’ base case remains that a deal is eventually passed, which should lead to a modestly stronger GBP," says George Cole, an analyst with Goldman Sachs. "For GBP, an extension increases the likelihood that the Brexit process moves towards even softer outcomes."
Goldman Sachs models suggest EUR/GBP "still embeds a Brexit-related risk premium, and therefore on a more benign end-state the cross could move to the low-80s."
EUR/GBP in the low-80s equates to a Pound-to-Euro Exchange rate in the high 1.20s.
Time to move your money? Get 3-5% more currency than your bank would offer by using the services of foreign exchange specialists at RationalFX. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency. Find out more here.