Sterling Surges After UK PM May Appears To Back Away From 'Hard' Brexit
Following a 240 pip plunge in Cable today, the pound is frenetically bouncing in early Asian trading after Bloomberg reports that UK Prime Minister Theresa May has accepted that Parliament should be allowed to vote on UK leaving the EU (but in a way that gives her space to negotiate) but adding that there shouldn’t be an attempt to block Brexit.
With the pound plummeting day after day, it appears a desperate effort to staunch the flow (and surge in implied inflationary pressure) prompted a modest concession by UK PM Theresa May away from her ‘hard’ Brexit call last week… (as Bloomberg reports),
Prime Minister Theresa May has accepted that Parliament should be allowed to vote on her plan for taking Britain out of the European Union, but asked lawmakers to do it in a way that gives her space to negotiate.
The decision may calm investors after they dumped the pound on concern May was taking a gung-ho approach to the negotiations. The currency took a beating, falling more than 6 percent this month, after May signaled her intention to put immigration curbs before the City of London’s interests in pulling Britain out of European Union.
Parliament will debate on Wednesday a motion from the opposition Labour Party calling for a “full and transparent debate on the government’s plan for leaving the EU” and for Parliament to be able to “properly scrutinize that plan” before she begins formal talks. The request is supported by some lawmakers from May’s own Conservative Party.
In response, May late on Tuesday tabled an amendment that effectively accepted the motion, adding that there shouldn’t be an attempt to block Brexit or “undermine the negotiating position of the government.”
While the concession is unlikely to stop Britain’s departure it does give lawmakers in favor of maintaining close ties to the 28-nation trade bloc — probably more than half of the chamber — a tool to pressure a premier with only a slim majority in Parliament.
In other words, May’s decision is pure political cow-towing to the opposition and will not stop the Brexit occurring on here timeline…
“Relief rallies in pound will be limited because of concerns about how tough the negotiations will be, the U.K.’s widening current account deficit and the prospect for more negative U.K. interest rates,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney.
“Given how aggressively short the pound the market was positioned, the prospect of U.K. parliament at least discussing the downside of a ‘hard Brexit’ has encouraged substantial profit-taking on those positions,” said Sean Callow, a senior strategist at Westpac Banking Corp. in Sydney.
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