It was all about Brexit for the British pound as traders and Parliament navigated through several crucial Brexit votes this past week.
United Kingdom Headlines and Economic data
- UK economy stalls despite strong January
- Cox says risk of UK being stuck in backstop remains
- Theresa May’s Brexit divorce deal fails once again in Parliament
- MPs vote to reject no-deal Brexit
- MPs vote 164-374 against ‘Plan C’ Malthouse compromise
- MPs support Brexit delay but reject second referendum
- UK house price growth weakest since 2011 as Brexit nears – RICS
Major Market Drivers for the British Pound
Based on the apparent uniform price action in chart overlay of Sterling pairs above, it looks like counter currency and global risk sentiment played only a minor role of setting the pecking order to which currencies performed the worst against Sterling. That title goes to the safe havens as global risk sentiment was in risk-on mode for the week, arguably on several factors including positive surprises from this week’s top tier global economic reports (most notably a bounce back in U.S. retail sales and the latest U.K. GDP report) and likely from the latest Brexit developments pointing to the avoidance of the worst case scenario. We also got positive signs from the ongoing U.S.-China trade situation and the potential stimulus moves as China plans to reform its foreign investment laws and vows new tax cuts.
Nope, the price action suggests it was all about Brexit, and since here’s really way too much to cover this week on Brexit developments we’ll just stick to the big moves in Sterling and the outcomes of the major votes. For those who want a play-by-play of the Brexit action, The Guardian provides live updates that you can check out if you want to follow every single news headline.
On Monday, we saw a broad rally in Sterling pairs without a seemingly direct catalyst, but arguably it could have been on speculation that the vote on Prime Minister Theresa May’s Brexit deal would be provisional, not meaningful (which was later rebuked by Theresa May), and possibly on the idea that Parliament will take control of Brexit from the PM if the deal was rejected.
Sterling reversed course on Tuesday on the opinion from Britain’s Attorney General Geoffrey Cox that the legal risks to Brexit still remain and that the latest version of Theresa May’s deal didn’t give Britain a legal means of exiting the “Irish backstop” arrangements unilaterally. This obviously had traders pricing in a lower probability that lawmakers who were on the fence were now not likely to vote in favor of the deal.
After Theresa May’s deal was defeated once again late Tuesday, pound pairs caught a bid on Wednesday during the morning London session, again with seemingly no direct catalyst. It’s possible that traders began to price in the the highly probable rejection of a no-deal Brexit to be voted on later in the session, and the rising odds of a Brexit extension passing that would be voted on Thursday. A no-deal Brexit was rejected late in the U.S. trading session, sparking one final push higher in British pound pairs to intraweek highs.
From that point on, volatility remained high among Sterling pairs but failed to produced any addition directional moves as Parliament voted to extend article 50 on Thursday, which was highly anticipated and obviously priced in before and after the no-deal Brexit vote. Sterling pairs remained choppy but they still closed the week strong on the idea that the worst case scenario (a no-deal Brexit) has been avoided, once again putting the British pound in the top spot against the major currencies for the week.