Brexit: Pound drops as Theresa May delays Commons vote on EU deal

Sterling falls to lowest levels in 18 months as chances of no-deal Brexit rise, dropping below $1.26 in late afternoon

Caitlin Morrison
Monday 10 December 2018 13:10 GMT
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The pound has plunged against the dollar and the euro after Theresa May delayed a parliamentary vote on her Brexit deal which was previously scheduled for Tuesday evening.

Sterling fell 1.6 per cent against the euro, to €1.1007, and dropped 1.57 per cent against the greenback to hit $1.2526.

Simon Harvey, FX analyst at Monex Europe, said: “When the market thought uncertainty had finally peaked, May’s delay proves it wrong.”

He added: “Previously, the diminishing chances of a no-deal Brexit failed to prompt a rally in the pound, as did the increasing chances of the Brexit timeline being reset or scrapped. This reinforced the assumption that the path of least resistance for sterling was always down to the high likelihood of a deal being rejected.

“However, by delaying the vote, May has all but accepted a defeat was the likely outcome and this increases uncertainty in the market. Today’s developments ultimately proved enough to push the pound to its lowest level in the last 18-months as it repriced the possibility of a no-deal Brexit.

"The EU has already stated that the deal will not be renegotiated, leaving May between a rock and a hard Brexit.”

(Reuters Eikon

David Cheetham, chief market analyst at XTB Online Trading, said delaying the vote “may have spared an embarrassing parliamentary defeat for the PM but it will no doubt see those calls for her to be replaced grow ever more vociferous”.

“The negative reaction in the markets is more likely due to what it means for her position rather than the failure to win the vote - with even her staunchest supporters already highly skeptical as to whether the bill would pass - as it now seems increasingly likely that a long-touted leadership challenge will ensue,” he added.

“May is now expected to make a late dash to Brussels in a frantic bid to renegotiate the deal but here position is no doubt becoming increasingly untenable. The frontrunners to replace May as PM such as Boris and Rees-Mogg are much more likely to push for a hard Brexit and this would no doubt be negative for the pound, at least in the near term.”

What moves currency markets?

Hamish Muress, currency analyst at OFX, said: “It was anticipated that this week would be volatile for the pound and it certainly has kicked off in that way. Many predicted that tomorrow would be the big day for any movement in the pound.

“However, it has already reached three-month lows against the euro and... could hit lows last seen against the dollar in August.”

The pound was on shaky ground on Monday morning even before the vote was pulled.

Simon Harvey, market analyst at Monex Europe, said the fact that the results of the vote, had it gone ahead, were so unclear meant the currency would remain unstable in the near future.

“The only certainty this week is increased volatility in foreign exchange markets,” he added

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