Pound traders chase Brexit headlines

PM May believes the risks of Brexit being thwarted are now greater than the UK going through the no-deal scenario, as it could trigger the breakup of the UK.  The biggest risk to cable remains the no-deal scenario, so we should not be surprised if we see the British pound gain on growing expectations for Article 50 to be extended.

This morning cable had a plethora of headlines that kept price action volatile.  We did see price overreact to headlines that the ERG Brexiter colleagues will vote for PM May’s deal unless Hilary Benn withdraws his amendment that would rule out a no-deal Brexit.  The initial spike was reversed after a separate release stated the pro-Brexit ERG will vote against PM May’s deal.

The focus over the next 24 hours will be on which amendments will be added to tomorrow’s vote.  The final vote may not even be what was agreed upon with the EU.  One amendment that could be inserted is a cutoff date for the Irish backstop, and if the government caves, we will wait to see the EU’s reaction.

If MPs do go forward with tomorrow’s meaningful vote, the margin of defeat will be closely watched.  A defeat by 100 votes, could be very bullish for the British pound as expectations would grow that PM May could pass the deal on a second or third attempt.  A severe defeat of over 200 votes could be devastating to cable and we could see between 3-5% weakness with sterling against the dollar.

After tomorrow’s vote, we will then have greater clarity on what UK Labour Leader Jeremy Corbyn next move will be.  He could very well call a vote of no confidence tomorrow night, but he very might wait until after he sees what PM May’s plan entails.  The Plan B option would need to be finalized within three days of the vote.

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Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya