Pound soars against US dollar and Euro as markets react to decisive Commons vote against Theresa May’s Brexit plan
- Sterling was down over 1 per cent versus the US dollar at 1.273 prior to the vote
- But afterwards it was trading at 0.40 per cent as the markets responded to vote
- The pound also recovered against the Euro and was trading at +0.31 soon after
- Currency traders await more volatility after MPs vote on Withdrawal Agreement
- However FTSE 100 ended today in positive territory off back of higher oil prices
The pound recovered against the US Dollar and Euro this evening as the markets reacted to Theresa May’s Brexit plan defeat.
Parliament voted 432 to 202 against May’s deal, the worst parliamentary defeat for a government in recent British history.
Scores of her own lawmakers – both Brexiteers and supporters of EU membership – joined forces to vote down the deal.
The pound which was down as much as 1.2 per cent before the outcome of the vote, briefly extended losses to fall 1.5 percent before rebounding sharply to stand up 0.10 per cent on the day at $ 1.2877.
Against the euro, the pound strengthened and was up 0.67 per cent standing at €1.1289.
It showed how the British currency rallied on some expectations that the scale of the defeat might force lawmakers to pursue other options.
Just one hour after the vote the pound was trading above the dollar at 0.10 per cent. It marked a dramatic rebound after it was down as much as 1.2 per cent before the outcome of the vote. Pictured is the pound against the dollar today
The pound also had a dramatic recovery against the Euro and was trading at +0.63 per cent. Pictured is the pound against the Euro today
The pound reached a five day high against the Euro this evening following Mrs May’s Brexit plan defeat. Pictured is the five day chart for the pound against the Euro
Labour leader Jeremy Corbyn put tabled a vote of no confidence in Theresa May’s government following the defeat. It is expected to cause greater volatility with the markets tomorrow
Markets did not seem to be panicking, with the pound rising in value following the results, which were announced at around 7.40pm.
XTB online trading said: ‘Traders are seemingly taking the outcome as paving the way for an extension of the Article 50 deadline, rather than increasing the chances of a no-deal Brexit and this has caused the recovery seen in the pound.
‘Attention now turns to what happens next with the levels of uncertainty raised once more and moving up to unprecedented heights.’
But such a heavy defeat for the government is likely to lead to a lot of volatility in the markets – which will only be worsened by an upcoming vote of no confidence.
Lawmakers will vote tomorrow evening in a no-confidence motion from opposition leader Jeremy Corbyn that could trigger a national election.
Commenting on this, Nigel Green, founder and chief executive of deVere Group, said: ‘ Following the leader of the opposition Labour party, Jeremy Corbyn’s tabling of a vote of no confidence, there is greater chance of a general election.
But in normal times this would spook the markets and have a directly negative impact (in the short-term at least) on the pound, the FTSE and UK financial assets generally.
‘But these are not normal times, and the DUP and Conservative MPs who vote against the government’s Brexit bill are unlikely to vote against the government. A general election seems a low probability outcome.’
Prior to the vote this evening, currency traders were awaiting more volatility, depending on the scale of the defeat and what might happen next.
In the moments after the vote the pound trading 0.40 per cent against the dollar as the markets responded to the vote of 202 in favour on Mrs May’s Brexit deal and 432 against
The pound drastically recovered against the Euro following the vote on Theresa May’s Brexit deal this evening
City Index’s Fiona Cincotta believed the pound would tank if Parliament rejected the deal with a large majority – but this appears not to be the case.
She said: ‘Labour (will) look to call a vote of no confidence in Theresa May, pushing for a general election.
‘Domestic political chaos, the prospect of a Labour government and on-going Brexit uncertainty would be a toxic combination for the pound, sending it back towards $ 1.20 and the post Brexit referendum lows.
‘An extension of Article 50 seems almost inevitable at this stage. This would offer some support to the pound as investors see the risk of a no-deal fading.
‘How the pound moves thereafter depends not only on what Plan B is, but also Labour’s reaction.’
Sterling was down 0.8 per cent versus the US dollar at $ 1.276 prior to the vote. The last 24 hours are pictured
A trader looks at monitors in a foreign exchange dealing room today in Seoul, South Korea
However, the FTSE 100 ended today in positive territory off the back of higher oil prices and moves by China aimed at strengthening its slowing economy.
London’s top flight was up 40 points, or 0.58 per cent, at 6,895.02 at the close. Meanwhile Brent Crude was trading at $ 60 a barrel, an increase of 1.6 per cent.
Earlier, the pound edged fractionally higher this morning as Asian markets weighed up the next 24 hours ahead of the Prime Minister’s Brexit deal.
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.
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.
Neil Wilson, chief market analyst at Markets.com, said that whatever the outcome, traders should expect ‘considerable volatility’ as news flow dictates price action.
He added: ‘The question is whether the imminent disorder is fully priced.
‘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 traders watch monitors at a foreign exchange dealing room in Seoul this morning
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.
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.’