SINGAPORE. (Mar 12): The pound advanced for a second day as the UK government said it had secured changes to its divorce deal from the European Union and planned to hold a vote in parliament.
Sterling climbed as much as 1.1% against the dollar after gaining 1% on Monday amid optimism progress is finally being made to resolve the Brexit standoff. European Commission President Jean-Claude Juncker urged the British parliament to approve the deal as he and UK Prime Minister Theresa May briefed reporters.
“If PM May gets her deal through, that would be very positive for GBP, but an avoidance of a hard Brexit and an extension would still be good news and see GBP head toward US$1.35 ($1.8),” said Rodrigo Catril, a senior foreign-exchange strategist at National Australia Bank in Sydney. “We remain optimistic that a hard Brexit will be avoided, and that in our view should put a floor on GBP.”
The pound has rallied 3.5% versus the dollar and more 5% versus the euro this year, as the market increasingly expects Britain to secure an agreement with the EU over its exit terms. It remains unclear whether the revised deal will satisfy Parliament when it votes late on Tuesday.
May put forward three new documents intended to provide additional legal guarantees that the UK can’t be trapped indefinitely inside the current backstop arrangement. The status of these documents will be scrutinised intensively during Tuesday’s debate. The papers include a “unilateral declaration” setting out how the UK believes it can escape the backstop.
The new agreement seems to fall “short” of the plan Parliament wanted to see, said Steve Baker, a pro-Brexit member of May’s Conservative Party. A panel of euro-skeptic politicians will examine May’s latest blueprint in detail, he said. May’s Attorney General Geoffrey Cox is expected to set out his formal legal opinion on the changes.
“The situation is very fluid but the market is perceiving hard Brexit scenarios as increasingly unlikely,” said Vassili Serebriakov, a macro strategist at UBS Securities LLC in New York.
Traders are also putting Bank of England’s rate increases back on the agenda. That may see gilts begin Tuesday’s session on a weaker note when trading gets underway in London. As of Monday’s close, sterling money markets were pricing less than 50% chance of a rate hike by December.
The pound pared some of its early gains as caution set in to trade 0.4% higher on the day at US$1.3198 as of 6.26 am in London. Sterling advanced 0.3% to 85.27 pence per euro ($1.51 per euro).
The lingering uncertainty is enough for Stuart Simmons, senior portfolio manager at QIC in Brisbane, to avoid trading sterling.
“There’s been too many false dawns,” he said. “While the outcome will likely be positive in the long run, the risk-reward just isn’t attractive.”
