Pound sinks to four month low as MPs slam May’s Brexit plan

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22 May 2019


Sterling leapt almost one percent higher against the US Dollar on Tuesday, before falling back just as violently on contrasting headlines out of Brexit.

he Pound had initially jumped prior to May’s speech yesterday on reports from Bloomberg that Theresa May would offer parliament a free vote on a second EU referendum. May’s actual proposal, which included the chance for MPs to vote on whether to hold a second referendum only if they back her withdrawal agreement, was greeted with widespread derision among politicians.

In a seemingly last ditch attempt to get her deal over the line, May stated she had made ‘significant further changes’ to her deal, including a closer trading agreement with the EU. Unsurprisingly, Labour leader Corbyn remains firmly opposed and has stated that he would not back her new agreement. The possibility of another Brexit vote has also created divisions within Theresa May’s own cabinet, while the Tory ERG is reportedly poised to try and force May out as PM.

The failure of May to bring sceptics of her deal onside has caused the market to become increasingly anxious over the possibility of a ‘no deal’ Brexit. May has stated that she will hold another vote on her WA in the first week of June. That vote is now highly likely to fail, throwing the entire process into even greater disarray. Sterling has reacted in unsurprising fashion, sinking back below the 1.27 level this morning to its weakest position in four months against the US Dollar. Further losses look likely in the short term, particularly should more and more MPs continue to come out and voice their opposition to May’s plans.

Euro pinned below 1.12 ahead of EP elections

Uncertainty surrounding the outcome of this week’s European Parliament elections also lingers in the market, providing an additional stumbling block to Euro strength. This has helped keep the common currency stuck below the 1.12 level since last Thursday afternoon.

While it is very difficult to predict with any degree of certainty the composition of the European Parliament following the voting, it is looking likely that populist parties will make sizable gains. The degree of the populist wave will likely determine the potential impact on the FX market, with a larger deviation from the status quo than expected to no doubt heap additional downward pressure on the Euro. Results are expected to be known on Sunday so we’ll have to wait until next week to see the true impact of the voting on financial markets.

In the meantime, we await tomorrow morning’s Eurozone PMI data, expected to show a modest rebound in business activity in the bloc in May.