GBP/USD: Pound rises against dollar on possible Brexit delay
The pound is rising despite Brexit volatility.
The pound is rising despite the political volatility in the UK. Sterling is $1.30 against the US dollar after reports of a delay in the scheduled Brexit deal in March.
Why is the pound rising?
The point started rising after British Prime Minister, Theresa May, won her no-confidence vote after her Brexit deal was rejected. While she survived to remain prime minister, she has been unable to come up with a clear alternative measure to leave the European Union (EU). A second referendum on Brexit could be on the horizon and that could ironically help sterling, according to IG analyst, Kyle Rodda.
‘Interestingly enough, Labour's failed no-confidence motion has markets betting that a second referendum could be on the cards. The Pound has shifted higher after the initial vote on the basis of that,’ said Rodda.
Jane Foley, head of FX strategy at Rabobank, noted that the pound is steady because a hard Brexit won’t impact the price of sterling. Foley believes that the lack of a Brexit deal to leave the EU is a sign that the pound is a stable buy.
‘A hard Brexit is absolutely not priced in to the pound. This means that any headlines that support the consensus view that a no-deal Brexit is going to be avoided is taken as a positive,’ said Foley.
Steven Gallo, head of European FX strategy for BMO Capital Markets, agrees that the pound can be sold at higher levels because there’s no alternative to the defeated Brexit deal.
‘It’s just noise at this stage because having an extension to Article 50 doesn’t mean that there is a new solution to Brexit,’ said Gallo.
What’s next for Brexit and the pound?
Michel Barnier, EU’s chief Brexit negotiator, noted that regardless of the Labour Party’s opposition, a hard Brexit is possible.
‘Opposing a no deal will not stop a no deal happening at the end of March. To stop a no deal, a positive majority . . . needs to emerge,’ said Barnier.
Regardless of the Brexit resoluton, investors will be watching to see how the pound will react during this unpredictable time.