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In the latest round of Brexit plot twists, the U.K. government got a tighter than expected extension on the breakup date, but relatively upbeat data saved the day.

Overlay of GBP Pairs: 1-Hour Forex Chart
Overlay of GBP Pairs: 1-Hour Forex Chart

United Kingdom Headlines and Economic data

Major Market Drivers for the British Pound

Sterling was under pressure all week as traders had been biting their nails to see if EU officials will grant the Brexit extension that PM May’s government so badly needed.

On Tuesday, the meaningful vote was ruled out by Speaker of the House of Commons John Bercow, but word on Downing Street was that PM May would push for still push for this third one the following week. By then, hopes were also running high that the EU would grant an extension soon.

Pound pairs caught a bit of a reprieve on stronger than expected U.K. jobs data, as the unemployment rate dipped from 4.0% to 3.9% despite Brexit uncertainty weighing on businesses and hiring. The average earnings index also turned out better than expected, coming in at 3.4% versus the projected drop to 3.2%.

The attention quickly turned back to Brexit on Wednesday, with pound traders barely reacting to upbeat U.K. headline CPI (1.9% vs. 1.8% forecast), as No. 10 had been lobbying to postpone Brexit by at least three months to June 30. When asked about the length and purpose of the delay, PM May’s answer proved unsatisfactory as she was unable to assure EU officials that her government could come up with substantial progress in that time frame.

Uncertainty surrounding the Brexit saga continued on Thursday as May had more meetings scheduled with European leaders. Labour leader Jeremy Corbyn also headed to Brussels for discussions on ‘alternative’ Brexit plans, spurring some sterling gains on improved sentiment. However, DUP lawmaker Sammy Wilson said that they still cannot support May’s deal if put to a vote next week.

After a lot of debates and questioning, the EU did give the U.K. some leeway but also made it clear that you can’t have your cake and eat it, too. After all, a drawn out extension would also keep the rest of the region in limbo for much longer and officials appear keen on getting it over with before the European Parliament elections on May 23.

With that, folks from Brussels are allowing the official divorce date to be pushed back to May 22 only if MPs are able to agree on the transition deal. If the parliament vote still fails, the U.K. will have no choice but to exit by April 12.

Sterling also drew support from the BOE decision as Governor Carney mentioned that Brexit could prompt policy moves in either direction and that “gradual, limited tightening is probably needed.”