Sterling needs one the biggest bad omens disappeared which is no no-deal outcome. It is this particular scenario which is keeping the currency on a very tight leash. If such scenario ever becomes a reality, the currency can drop like a rock. The currency is highly sensitive to news ahead of today’s crucial vote in Parliament. If the House of Commons fails to ratify a Brexit deal, there will be no choice but to tumble out of the block without having any agreement in place.
Theresa May, the British prime minister, is in danger of suffering another defeat in the parliament today which could result in her losing control of Brexit to parliament. She suffered the biggest defeat in the House of Commons back on Jan. 15 when her team members rejected her divorce deal. She was adamant at that time that the deal she has is the best deal, and there is no deal except this. However, the prime minister had plenty of time after her historical loss to soul search and look for the answers through which she can get the backing of her own party members.
In a shocking move, May finally decided that there could be a better deal which she has secured; there is an alternative solution to the backstop plan for the Irish border. Yesterday evening, she declared to her self that it is more important to get the support of her own party members and worth giving up her stubbornness by abandoning the agreement which has called the “only agreement”. Remember, this “only agreement” took her 18 months to negotiate it.
In today’s vote, May’s ultimate goal is to avoid another defeat; she is going to block a proposal under which Parliament can prevent a no-deal divorce scenario by delaying the Brexit.
She clearly needs to win the support of Conservative hardline Brexit backers and bring them back in her corner. The hope is that she can persuade the EU to change their stance towards the Irish backstop by radically changing it. The alternative for her is that this agreement is all together ditched and thus opening a door for a new deal. Now, in order to have a new deal, the EU has shown very little appetite so far. In order for Theresa May to have this the way she is thinking, the EU officials have indicated that it would require movement in the term so called by her red lines.
As long as (in today’s vote) the no-deal Brexit outcome becomes no longer a possibility, the probabilities are in favour of sterling to move higher. Speaking from a technical analysis perspective, the current bull momentum is strong as it has broken its downward trend line and it is trading above the 50 and 100-day moving averages (shown in green and pink respectively). The move towards the 1.3324 is possible today depending on the outcome of the vote.
