Last week was potentially one of the biggest weeks in UK politics, with a historical defeat for Theresa May’s deal, with a vote of no confidence the following day. With these results, the assumption would have been due to the uncertainty in UK politics, the Pound would have weakened; however, what we have seen is quite the opposite.
Since new year- the GBPEUR exchange rate has moved from 1.10-1.14 and GBPUSD has moved from 1.25-1.30- this is all down to the fact that markets are no longer of the belief that a “No Deal” Brexit is on the cards. The reason for this, even though the PM is refusing to remove a No Deal from her scenarios, is that MP’s will now have more control over the deal that does happen, and Labour MP’s generally will not go for a no deal, so it seems that now this would be impossible.
Theresa May is expected to present her “Plan B” to Parliament on Monday 21st January, however looking at reports over the weekend, it seems there will no real changes, and she will say that she will be looking to gain more clarification on the Irish backstop.
MP’s will vote again on the next deal on January 29th, and it seems that unless there are real changes, that deal will be voted down as well- it is for this reason that analysts are pricing in an extension of Article 50- all of these are good enough reasons to see short term strength in the Pound.
The long term view, however, is still uncertain. If Brexit will actually happen, how it will happen if it does, and when it will happen all seem to be questions that we are nowhere close to answering. We have seen how quickly one newspaper headline can remove all gains from currency, so if you are in the process of selling Sterling to purchase foreign currency- I highly recommend looking at hedging yourself against the markets just in case of a change in events- which is always likely when it comes to politics!