The Business Times

Sterling rallies on talk UK government considering Brexit delay

Published Mon, Feb 25, 2019 · 10:18 AM

[LONDON] Sterling gained on Monday as traders considered whether the British government might delay Brexit if Prime Minister Theresa May fails to secure support in parliament for her withdrawal agreement.

Britain's Brexit crisis is going down to the wire as May struggles to get the changes she needs from the EU to get her deal passed by a divided parliament. She faces a growing risk that she will be forced to delay Brexit.

That has helped the pound gain 2 per cent over the last seven trading sessions with investors seeing the chances of a disorderly no-deal exit - the worst-case scenario for the currency - as decreasing.

The immediate focus for traders is Wednesday when parliament votes on Brexit amendments.

Opposition Labour Party lawmaker Yvette Cooper's amendment seeks to prevent a no-deal Brexit and may be passed as three government ministers have added their support.

"I expect GBP appreciation if May loses the ability to put pressure on MPs (Members of Parliament) by threatening a no-deal scenario," said Ulrich Leuchtmann, head of FX research at Commerzbank.

The pound on Monday rose as high as US$1.3099, up 0.3 per cent on the day. Against the euro sterling was also ahead, rising 0.1 per cent to 86.70 pence.

One-month sterling implied volatility - a measure of expected price swings in the pound - has risen, as traders get nervous about more possible parliamentary votes on the Brexit process.

Cautious optimism about some sort of imminent breakthrough is reflected in the currency derivatives markets with one-month pound risk reversals, a gauge of calls to puts on the pound, close to one-month highs.

Britain's government is considering different options, including possibly delaying Brexit, if parliament fails to approve May's deal by March 12. Britain is due to leave the European Union on March 29.

The EU has said it will consider an extension to the Brexit process, but only if Britain can offer evidence that such a delay would break the deadlock in parliament.


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