Here Comes the Supreme Court – Where will the Pound Go?

After a quiet day from a macroeconomic data perspective, there’s certainly a bit more action today, France, Germany and the Eurozone’s January prelim manufacturing and service sector PMI figures scheduled for release through the start of the European session, with December’s existing home sales and January’s manufacturing PMI out of the U.S due out later in the day.

The figures will provide the markets with some much needed distraction the Trump-trade seeming to shift to a Trump-dump following last Friday’s inauguration speech.

If the markets were hoping that geo-political risk was going to take a back seat today, they would be disappointed however, with the UK Supreme ruling scheduled at 0930GMT this morning, the markets are in for another treat, though the level of surprise is unlikely to be anything like noise from across the pond, which the markets have had to deal with over the last two weeks.

The British Prime Minister managed to take some of the sting out of today’s ruling, the government’s objectives having been clearly laid out last week, with the key driver for the pound having been the news that parliament would get to vote on the terms under which Britain would leave the EU, following the post-Article 50 negotiations.

The Supreme Court ruling is expected to leave the markets considering the prospects of a softer-Brexit, the pound currently pricing in a hard-Brexit at present, Theresa May’s objectives clear on Britain’s departure from the EU, which includes conceding access to the single market, the negatives.

Judging by the British Prime Minister’s decision to include parliament through the process, expectations are for the court to rule against the government, which would be expected to provide some support for the pound, the uncertainty, ultimately lying in the language of the Supreme Court’s ruling, the influence of both Scotland and Wales a material consideration.

May has already held a debate in Parliament on Brexit back in December, so we’re not going to expect the markets to begin considering the possibility of parliament voting against May being able to invoke Article 50, which should limit any material gains in the pound from the main ruling, while how much influence parliament will have over the government’s basis of negotiation will likely be more critical.

Our view is that the parliamentary vote at the end of the negotiation period is more window dressing, particularly should the vote come with little to no time for the government to go back to the drawing board, Article 50 being an irreversible process, so influence going into the negotiations are certainly more relevant than a vote at the end.

The pound has managed to recover from intraday lows ahead of the Supreme Court ruling, currently sitting at $1.2506, down just 0.26% against the Dollar and with a lack of material economic data out of the UK today, the ruling could see the pound begin making a run towards $1.27, assuming the courts rule against the government.

We’re getting closer and closer to the end of March and the government is doing its best to provide the markets with as much clarity as possible, which has eased some of the volatility in the pound, though we are likely to see more volatility in the months ahead, particularly if the EU continues to flex its muscles.