While it adds to the political excitement, today’s supreme court ruling gives very little in terms of certainty to the Brexit process.
The pound’s whimper of a rally evidences this as there are still a lot of moving parts ahead of the October 31st.
Arguably the probability of the government forcing a no-deal exit has been trimmed by the decision.
The extensive repercussions a no-deal exit would have to the UK economy continues to hang around the pound’s neck, capping any optimism. There is still over a month to play for and the probabilities of each scenario ensuing continue to chop and change.
Sterling traders are aware of this and have shown restraint in letting the political noise drive the pound yet again today.
Chart: Sterling retraces yesterday’s losses but optimism is capped there
Going forward, sterling will cast its eyes back to Westminster as MPs will likely begin to shuffle back to work.
We are yet to see what the emboldened Europhiles are to do with another victory over the government underneath their belt, but it looks like Johnson’s grip of the Brexit process is beginning to slip.
Neutral territory for GBPUSD is roughly around the 1.23-1.25 mark.
We don’t expect any significant deviation in the short-run from this range without any material development in the process that leads to a likely and definitive Brexit outcome ahead of the October deadline.
Author: Simon Harvey, FX Market Analyst at Monex Europe.