The early stages of this week were always likely to provide further volatility to sterling exchange rates, with tomorrow evening’s vote weighing heavily on investor confidence.
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Comments made by Ireland’s deputy Prime Minister Coveney suggested that any changes to the Irish back stop were off the table. These may well set Sterling off on the front foot as this stance implies that the Prime Minister will be forced to seek an extension of the withdrawal deadline.
With no real changes to her proposal, PM May has to convince MP’s that she can get the concessions needed to see the withdrawal bill through ahead of the March 29 deadline.
As many as 15 amendments are due to be put forward by MPs, with a second referendum and an extension of article 50 the most notable, opening up a whole new level of political uncertainty which will drive sterling exchange rates moving forward.
Just what the Government will do with an extension to the article 50 deadline remains to be seen, given that the challenges remain the same. I personally see Sterling’s recent momentum halted until the picture becomes clearer. Equally, I feel it is worth noting that most of sterling’s recent strength stems from the prospect of a no deal Brexit fading. However nothing has been signed since May’s historic loss and it remains a distinct possibility if the push for an extension to article 50 is rejected. Although unlikely at this stage, a no deal would surely result in a complete unravelling of January’s gains and potentially drop back even further, making holding out for higher returns after the vote a risky strategy.
Given that sterling is currently enjoying multi month highs against the majority of its currency counterparts, those in the market for foreign currency may want to consider their options whilst the going is good.
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