Theresa May tries to maintain control of the Brexit process and face down the Cooper amendment, but threats of a no-deal bursts sterling’s bubble.
After cracking a fresh 2019 high against the US dollar and an 18-month high against the euro this morning, sterling began to pare gains after Theresa May stated that an extension in Article 50 would not take no-deal off of the table.
Much of the pound’s gains this morning were due to a culmination of the deteriorating chances of a no-deal Brexit and the increased probability of a softer future framework. However, these assumptions proved just conjecture, and sterling’s bubble was quickly burst in May’s mid-day statement.
Future commitments by May should the second meaningful vote fail, which include a vote on leaving the EU without a deal and a vote on a short Article 50 extension, looks like further can kicking by the resilient Prime Minister to hold onto the Brexit process. The promises are merely trying to erode the popularity of the Cooper amendment in order to maintain control of the next steps should her deal fail to be ratified. Any further rally by the pound is therefore dependent on whether Cooper’s amendment passes. This will tie May’s hands in Parliament and forcefully take no-deal off the table.
Chart 1: Sterling receded from today’s historical highs after May utters the words “no deal”.