Extension or Bust – Another Big Day for the Pound

It’s another big day for the Pound. A vote for or against an extension to Article 50. Expect some choppiness as the market frets over the possible outcome.
Bob Mason
Parliament

One More Vote or…

The Brexit Can was kicked down the road for yet another day on Wednesday. The Pound rallied by 2% to hit $1.33 levels for the first time since June of last year.

While a vote in favor of blocking a no-deal exit is certainly a positive, the reality remains that the EU looks to be unwilling to make any further concessions.

Ironically, an extension could ultimately work out in the EU’s favor. An unwillingness to renegotiate would likely see Theresa May ousted and a snap general election called.

Certain issues over whether Britain should leave the EU with the existing deal or without a deal or remain could possibly be addressed in an election. The very fact that Britain has failed to garner a favorable deal with the EU could catch the markets off guard for a second time around, however. After all, it was the desire to break free from the Establishment that led to Brexit in the first place and the EU has hardly made things look any rosier.

Extension or Out

So, the next issue the market now needs to face is whether Parliament will vote in favor of an extension to Article 50. The current date of departure from the EU is 29th March, which is two weeks away tomorrow.

Britain had voted in favor of leaving the EU. Britain had not voted on the terms under which the 2 would part ways. So, the bigger question is whether an extension would achieve anything.

Does more time for negotiations mean that the EU would be willing to make further concessions? After 2-years of negotiations now passed, one would hazard a guess that the answer would be no.

Would the British public vote remain in the EU for a second time? First thing is first. An extension would likely lead to a vote of no confidence. Granted, Theresa May did pick-up the poisoned chalice. Her sole mandate as Prime Minister has been to lead Britain safely out of the EU. Few others wanted the role and the news wires today have justified the decision made by those who chose to stay away.

Of greater concern are the failings of the Conservative Party. A party split down the middle is not a party to run a nation, let alone in a coalition government.

The coming days will certainly be interesting, but of greatest significance will be today’s vote.

The Vote

Another hectic day lies ahead. Vote number 3 of the week and it’s on whether to extend Article 50. Few if any will not be up to speed on what’s going on. The Pound’s swings are evidence enough of just how uncomfortable the markets are over events unfolding in London.

Rebels galore in the Tory Party rained on Theresa May’s parade on Wednesday. Will there be more humiliation today?

Theresa May has delivered yet another ultimatum. Having fallen on deaf ears on previous occasions, it is entirely plausible that the rebels could vote against an extension. The way things are unraveling, it looks as though MPs are looking to, not only remove a no-deal option but possibly end Brexit altogether.

Jeremy Corbyn and the Labour Party are waiting in the wings, ready to give the British public a second referendum.

What’s best for the Pound?

An extension to Article 50 is the only possible positive outcome for the Pound today. While we would expect the Pound to find support from a vote in favor, uncertainty over what lies ahead would then begin to have an impact.

The British Prime Minister will look to push the existing deal through the door, while likely fighting off another vote of no confidence. A split Conservative Party may well be the end for Theresa May.

The length of the extension could be key today. The longer the extension the more likely that Brexit would be canceled altogether. Time would be needed for a second EU Referendum and then there will be the issue of a General Election.

At the time of writing, the Pound was back at $1.3262, down 0.53% for the session. While the idea of Parliament voting against an extension seems fictional, the possibility is there and has certainly brought the Pound’s rally to an abrupt end.

A Parliamentary vote in favor of an extension and expect the Pound to bounce back to $1.33 levels and quite possibly beyond. A vote against and, well, mayhem…

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