Pound Hits Highest in Over a Month as Johnson Strategy Crumbles
Bloomberg
Published Sep 05, 2019 07:27AM ET
Updated Sep 05, 2019 07:51AM ET
(Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.
The pound rallied for a third day after Parliament tore up U.K. Prime Minister Boris Johnson’s Brexit strategy and denied his request for a snap election, tempering fears of further political turmoil.
Sterling headed for its biggest weekly gain since May after lawmakers voted to force Johnson to delay Brexit for three months. An election is still on the horizon with the prime minister losing his majority earlier this week, but it may not come until after an extension to the deadline has been set, reducing the risk of a chaotic exit from the European Union.
The U.K. currency has recovered the ground it lost since Johnson announced last week that he would suspend Parliament for over a month ahead of the Brexit deadline, setting off a rebellion which ultimately led to lawmakers seeking to block him from pursuing a no-deal. It is headed for a weekly gain of 1.5%.
Johnson plans to appeal directly to voters in a speech “to decide what they want” through an election, according to a statement from his office. Still, he needs two-thirds of Parliament to back him in order to call one, and the opposition Labour party wants the Brexit delay to pass into law first.
“My expectation is Brexit is delayed until Jan. 31 with an election after the initial deadline and before the end of January,” said Neil Jones, head of currency sales for financial institutions at Mizuho Bank Ltd. “A delay for both Brexit and a general election will continue to send the pound higher.”
The pound gained 0.7% to $1.2336, after rallying 1.4% Wednesday. The currency also strengthened 0.5% to 89.63 pence per euro.
Even with the results in Parliament Wednesday evening, investors are primed for an election to come at some stage. Pressure is mounting on the Prime Minister with 21 rebel MPs expelled from the Conservative party this week. His own brother Jo Johnson resigned on Thursday, citing tension between “family loyalty” and the “national interest.”
The pound’s fate in the longer-term depends on when an election is called and who looks likely to win. Traders may sell the currency on the announcement of a snap poll, according to Wells Fargo (NYSE:WFC) currency strategist Erik Nelson, as it would bring the risk of a coalition with Nigel Farage’s Brexit Party.
“If an election were held today, the Conservative Party would likely win the most seats in Parliament, but fall well short of an outright majority,” said Nelson. “A Conservative/Brexit coalition gaining an outright majority would be the most significant downside scenario for the pound, as this group would likely be freer to push for a no-deal Brexit.”
Get The News You Want
(Adds context from 7th paragraph, updates pricing.)
Written By: Bloomberg
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.