Pound Sterling was up 0.47 percent against the US dollar to $1.3137 at 9:50am, according to Bloomberg. The currency had surged to a 22-month high on Tuesday – hours after Theresa May secured a Brexit compromise on the controversial Irish backstop from European Commission President Jean-claude Juncker. It had jumped as high as $1.3290 but then plummeted to $1.3020 after Attorney General Geoffrey Cox admitted the Prime Minister’s new Brexit deal failed to reduce the legal risk associated with the backstop.
The pound is up 0.42 percent against the euro to €1.1632, according to Bloomberg having jumped nearly half a percentage point in early morning trading on Tuesday to €1.1748.
Like the US dollar, the British currency slumped against the euro following Mr Cox’s announcement, down to €1.1558.
But sterling has been rising this morning after JP Morgan lowered the probability of the UK leaving the UK leaving the EU on the terms of Mrs May’s Brexit deal from 45 percent to 35 percent.
Pound Live: Sterling is surging against the US dollar and euro after a day of high Brexit drama
The US investment bank also raised the probability of a second referendum from 15 percent to 20 percent, as well as the probability of a general election from 10 percent to 15 percent.
It still thinks there is a 10 percent chance of a no deal Brexit and 20 percent change of a long extension of Article 50, which would see Britain’s departure from the bloc delayed beyond the proposed date of March 29.
Last night, the Prime Minister suffered a crushing defeat in the House of Commons when her Brexit deal was defeated by 149 votes.
The CBI has warned a new tariff regime on EU products in the case of a no deal Brexit will act as a “sledgehammer” to the UK economy.
The levies will be imposed from the day after a March 29 Brexit if MPs vote for a no deal withdrawal but would force up prices on EU imports, including cars and many food products.
Pound Live: Sterling has staged a huge recovery against the US dollar
The unilateral and temporary regime includes levies of 10.6 percent on European cars and trucks which had previously been free of tariffs.
Tariffs on EU goods like beef, chicken, lamb, pork and Cheddar-style cheese would also be introduced if MP’s vote for Britain to exit the EU without a Brexit deal.
CBI Director General Carolyn Fairborn told BBC Radio 4’s Today programme: “This tells us everything that is wrong with a no-deal scenario.
“What we are hearing is the biggest change in terms of trade this country has faced since the mid-19th century being imposed on this country with no consultation with business, no time to prepare.
“This is no way to run a country.
Pound Live: The British currency could fluctuate wildly this week during key Brexit votes
“What we potentially are going to see is this imposition of new terms of trade at the same time as business is blocked out of its closest trading partner.
“This is a sledgehammer for our economy.”
Adam Marshall, Director General of the British Chambers of Commerce, warned the tariffs could potentially cost the UK leverage in future trade talks.
He said: “The abruptness of changes to tariff rates in the event of a no-deal exit from the EU would be an unwelcome shock to many of the businesses affected,” said Dr Marshall.
“There has not been enough consultation, preparation or planning to support the firms and communities that could find themselves at the end of a sudden shift in tariffs.
“As MPs vote tonight, this is yet another reason why they must act to avoid a messy and disorderly exit from the EU on March 29.”
Pound Live: Theresa May has suffered two huge defeats on her Brexit deal so far this year
Under a temporary and unilateral regime announced by the Government, EU goods arriving from the Republic and remaining in Northern Ireland will not be subject to tariffs.
However, tariffs will be payable on goods moving from the EU into the rest of the UK via Northern Ireland under a schedule of rates also released on Wednesday.
The Government insists that this will not create a border down the Irish Sea, as there will be no checks on goods moving between Northern Ireland and Great Britain.
Chancellor Philip Hammond will deliver his Spring Statement this afternoon following yet another crunch Cabinet meeting on Brexit.
It is unlikely he will make major announcements on tax and spending, but there will likely be new forecasts for economic growth.
But the pound is now braced for even more volatility this week, with a number of key Brexit votes taking place over the next two days.
Without an acceptable plan, Britain might have a difficult time convincing European leaders at the EU summit next week, forcing market participants to reverse their positions on the pound and again exposing the currency to sudden downturns
Later today, MPs will vote on whether whether Britain should leave the European Union without a Brexit deal in place.
If this exit plan is rejected by Parliament, another vote will be held on Thursday on whether to delay Brexit and extend Article 50.
Ayako Sera, senior market economist at Sumitomo Mitsui Trust, warned the pound could be exposed to more intense volatility if an acceptable Brexit plan is not in place before the next European Summit in Brussels on March 21.
She said: “Even if Britain decides to extend the Brexit deadline, the question will shift quickly to the length of the extension it desires and what it plans to accomplish within that period,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.
“Without an acceptable plan, Britain might have a difficult time convincing European leaders at the EU summit next week, forcing market participants to reverse their positions on the pound and again exposing the currency to sudden downturns.”
Pound Live: Focus will be on the British currency when Philip Hammond delivers his Spring Statement
Takuya Kanda, general manager at Gaitame.com Research Institute, said: “The parliament is likely to reject a ‘no-deal Brexit’ plan, and the March 29 exit date subsequently being extended now looks to be a distinct possibility.
“The pound is thus stabilising on such expectations for now.
“Considering how sensitive the pound is to headlines, we could see the currency gyrate again if the door is opened for an extension of the March 29 exit deadline.”
Speaking after last night’s defeat in the Commons, the Prime Minister warned voting against leaving without a Brexit deal and for an extension “does not solve the problems we face”.
The Prime Minister said: “The EU will want to know why we want that extension.
“The house will have to answer that question: does it want to suspend Article 50, does it want a second referendum, or does it want another deal, but not this deal.”
Pound Live: Geoffrey Cox’s legal advice on the Irish backstop sent sterling plummeting
Samuel Tombs, UK economist with Pantheon Macroeconomics, told poundsterlinglive.com: “More important votes will be held on Thursday, when the government will lay down an amendable motion to seek an extension to Article 50.
“A cross-party amendment proposing free votes on a range of different Brexit options likely will be tabled; it stands a better chance of succeeding this time, now Mrs May’s deal is effectively dead.”
He added: “The Withdrawal Agreement would be unrevised, but the Political Declaration would be overhauled to bring Labour MPs on side.
“We still see around a 30 percent chance of a second referendum, either called by Mrs May or backed by a majority of MPs to break the deadlock, but believe the chances of another election remain slim.”