Pound recovers ground after ‘meaningful’ Brexit vote

The pound has recovered most of Tuesday’s losses after MPs voted to reject Theresa May’s Brexit deal.

The vote opens up a range of outcomes, including no deal, a renegotiation of Mrs May’s deal, or a second referendum.

Sterling was still down on the day by 0.4% to $1.279 after declines of more than 1%.

The currency slumped 7% in 2018 reflecting uncertainty about the terms of the UK’s exit from the European Union.

“A defeat has been broadly anticipated in markets since the agreement with the EU was closed in November 2018 and caused several members of the government to resign,” said Richard Falkenhall, senior FX strategist at SEB.

Business groups said their members’ patience was wearing thin.

“There are no more words to describe the frustration, impatience, and growing anger amongst business after two and a half years on a high-stakes political rollercoaster ride that shows no sign of stopping,” said Adam Marshall, Director General of the British Chambers of Commerce. He implored government to come to a deal.

Pound v dollar

Some investors see the chances of a no-deal Brexit diminishing as parliament exerts more authority over the process.

“A pretty poor outcome from Brexit has already been discounted so sterling, from here, will move more on good news than bad,” said Kit Juckes, global head of FX strategy at Societe Generale. “Anything short of a no-deal Brexit is likely sterling positive.”

On Friday, hedge fund manager Crispin Odey, a major donor to the Brexit campaign, said he now expects the project to be abandoned altogether and that he is positioning for the pound to strengthen.

Pound v euro

Others are concerned the rejection of Mrs May’s plan makes a no-deal Brexit more likely as other options become fewer in number.

“A no-deal Brexit means the public will face higher prices and less choice on the shelves. British businesses desperately need certainty about the UK’s future trading relationship with the EU and will be severely disadvantaged by a no deal.” Helen Dickinson, chief executive of the British Retail Consortium, said in a statement. “The time for Parliamentary games is over.”

While there is speculation that Britain’s exit from the EU must now be suspended as the most-developed plan has been scrapped, businesses may not be counting on this, particularly complicated ones like banks.

“Firms have no choice but to fully implement their no-deal plans,” said Omar Ali, UK Financial Services Leader at accountants EY.