The pound rallied after the Brexit defeat in Parliament, paring earlier losses to finish the previous session broadly flat. Today we will see if Theresa May can fight off another challenge to her leadership.
A historic and humiliating loss for the Prime Minister, saw 432 votes against her deal and just 202 in favour. The scale of the defeat prompted opposition leader Jeremy Corbyn to table a vote of no confidence for today as he pushed for a general election. Elections generally spark a sell off in a market, as they are a risky event. However, today’s scenario is far more complex which is reflected by the fact the pound is flat in early trade, showing few signs of giving up yesterday’s rally.
The pound surged following Parliaments rejection of the deal. Currency traders took an optimistic view, looking past the news to what could ultimately be a better result for the UK economy. Rather than seeing this as a step closer towards a no deal Brexit, as Theresa May had originally threatened, traders are seeing this as a move towards extending Article 50 and delaying Brexit. The perceived probability of a no deal Brexit are diminishing, which is pound positive.
The government is expected to win a vote of no confidence at 7pm GMT. Theresa ‘Feline’ May will likely be using another of her 9 lives. The DUP and other rebel Tories have guaranteed their support to May.
Jasper Lawler said: “Then there is the question of what next? On surviving the vote of no confidence Theresa May has until 21st January to put forward her Plan B. We can expect volatility in the pound to continue. Whilst this level of uncertainty looms over UK politics and Brexit, we don’t expect the pound to push much higher.”