It’s the start of another crucial week for Theresa May with her Brexit withdrawal agreement due to be voted on in the House of Commons tomorrow evening. Defeat for the plan is all but assured; however, it is the margin of defeat and what happens after that which will be the primary mover of the Sterling. Should May succumb to a narrow(ish) defeat of 60-80 votes, then that may encourage the EU to issue some further comment regarding the Irish border to try and win over hardcore Tory Brexiteers to agree to May’s plan. If, as expected, the margin of defeat is closer to 200 votes, then the EU may decide to keep quiet and see how events play out. Once defeated, the government will have to put forward another plan within three legislative days, which means another vote could take place on Monday the 21st. It seems increasingly likely that Labour leader, Jeremy Corbyn is going to issue a vote of no confidence in the government should it lose the election, which could open the door to a softer Brexit. There is also the possibility that we could see MPs table a motion that the UK is not allowed to leave the EU without a deal. With limited time for any of these permutations to play out, it seems more and more likely we will get some extension to Article 50. The chances of another referendum and the UK not leaving altogether are also increasing, especially seeing as EU courts recently gave the UK the unilateral right to cancel Brexit if it wished. This is likely the reason GBP/USD is up above the 1.28 handle this morning, as any hint of Brexit not happening or at least being delayed is pound positive.
As a footnote, we also have CPI and Retail Sales numbers from the UK this week; expect these to be entirely overlooked by the fx markets.
The GBP/USD pair is trading at 1.2841 this morning.