Tonight, the UK government suffered a defeat in the House of Lords, as the Lords voted for an amendment to the EU bill. The EU bill now returns to the House of Commons, which will vote on the amendments on 13-14 March.
PM Theresa May has said she will still trigger Article 50 before the 'end of March'. The House of Commons is likely to vote down the amendments and the Lords are not expected to delay the passing of the EU bill further.
The defeat means that PM Theresa May cannot trigger Article 50 at the EU summit in Malta on 9-10 March but has to wait until 15 March at the earliest. She is not expected to wait until the end of the month, as it clashes with the celebration of the 60-year anniversary of the Rome treaty on 25 March. Thus, the defeat does not prevent a triggering of Article 50 but only postpones it by a few days.
EUR/GBP has moved higher from 0.84 to nearly 0.86 in a week, not least after the renewed focus on a potential second independence referendum in Scotland. We expect EUR/GBP to move even higher in coming months ahead of and after the triggering of Article 50 and target EUR/GBP at 0.87 in 3M. That said, EUR/GBP is not only affected by political uncertainty in the UK but also in Europe, not least due to the French presidential election, which may put downward pressure on EUR/GBP if Le Marine Pen gains momentum in polls and markets begin to price in a political risk premium in the euro.
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