Pound Sterling slumped 0.71 percent against the US currency this morning to $1.3243 at 11:15am, according to Bloomberg. It had fallen to as low as $1.3240 earlier today before staging a steady recovery. The pound had surged two percent against the US currency – it’s biggest move since April 2017 – as investors became more optimistic that a hard Brexit would be ruled out.
We now expect an Article 50 extension, and our economists’ base case remains that a deal is eventually passed, which should lead to a modestly stronger GBP
Sterling was also down 0.55 percent against the euro to €1.1710 and had fallen to a low of €1.1695 before recovering to €1.1726 earlier this morning.
The rejection of a no deal Brexit, passed by 312 votes to 278, set up another vote this evening on whether Brexit should be delayed beyond the proposed date of March 29.
George Cole, an analyst at Goldman Sachs, told poundsterlinglive: “We now expect an Article 50 extension, and our economists’ base case remains that a deal is eventually passed, which should lead to a modestly stronger GBP.
Pound LIVE: Sterling plummeted after making huge earlier gains
“For GBP, an extension increases the likelihood that the Brexit process moves towards even softer outcomes.”
Joe Manimbo, a foreign exchange analyst at Western Union, told poundsterlinglive.com any delay to Brexit “could open the door to more pound-positive outcomes”.
He said: “Despite all the Brexit confusion, the Pound continues to take its broad cues from an expectation that Britain might ultimately vacate the EU with a trade agreement, the orderly route seen limiting economic fallout.
“Delaying Brexit could open the door to potentially more pound-positive outcomes such as a soft Brexit or a second referendum.”
The pound has fallen heavily against the US dollar this morning
Michael Brown, senior analyst at Caxton FX, said confirmation of an extension to Brexit would provide the pound with further support.
He said: “While the motion passed in Parliament is non-binding, it seems that MPs will do all in their power to avoid leaving at the end of March with no deal in place.
“Such an outcome has provided the market with a modicum of certainty, something that Sterling traders have been craving for a while.
“This evening’s vote on extending the article 50 negotiating period is expected to pass, thus Sterling would likely be underpinned if an extension to the period is confirmed.
“There are also reports that a 3rd meaningful vote will be held next week, in a last ditch effort for the Prime Minister to pass her deal.
“As before, the passing of a deal, or confirmation of an extension, would provide Sterling with further support.”
Pound LIVE: MPs will now vote on whether to delay Brexit and extend Article 50
Viraj Patel, an analyst with Arkera in London, also told poundsterlinglive.com: “A big win for the Pound – majority of MPs choosing economic rationale over party politics = reduction in risk premium.
“Also increases odds of getting certainty one way or the other (a deal or a push to avoid Brexit altogether).”
He added: “This is such an important moment for the Pound. Effectively renders any scenario of a disorderly decline in GBP/USD as null.
“Won’t necessarily see GBP rally, but should offer strong support for the Pound going forward.”
Sterling has also suffered similar falls against the euro today
Naeem Aslam, chief market analyst at Think Markets, said in a note: “Parliament has made it clear that unless there is a deal, they are not ready to leave the EU.
“Sterling traders are in love with this concept and this pushed the price of Sterling higher against the dollar.”
Business Secretary Greg Clark, work and Pensions Secretary Amber Rudd, Justice Secretary David Gauke and Scottish Secretary David Mundell were four of 12 ministers who abstained from voting last night.
Following the defeat, Theresa May made it clear she intends to put a third meaningful vote on her Brexit deal to the Commons within days.
Pound LIVE: Theresa May has also rejected extending Brexit beyond March 29
The Government then put down a motion for debate today that offers to seek a one-off extension of Article 50, delaying the scheduled Brexit date until June 30 if MPs approve the deal negotiated with the EU by next Wednesday.
But the Prime Minister warned if the deal, which has already been twice rejected by overwhelming majorities of 230 and 149, is not approved, a longer extension will be needed.
This would require Britain to take part in the upcoming European Parliament elections in May.
Mrs May said: “I do not think that would be the right outcome.
“But the House needs to face up to the consequences of the decisions it has taken.”