Pound weakens as Brexit deal gets put on hold
Market news selected by the DBS Chief Investment Office
The pound weakened against all its major peers as UK lawmakers rejected Prime Minister Boris Johnson’s plan to fast-track his Brexit accord through parliament.
After a rally of more than 8% since early September, currency strategists had predicted that only a win for the government would enable sterling to extend its gains. Many said losses would be limited in the event of a defeat, since the risks of a no-deal exit from the European Union had already been largely neutralised.
In the event, sterling slid as much as 0.8% against the dollar before recovering from its intra-day low. The decline was contained as the government won an initial vote on the deal and Johnson opened the door to a potential extension to a 31 October deadline, after earlier threatening to throw out the deal if lawmakers rejected his plans.
Parliament’s vote to reject the planned schedule makes it virtually impossible for Johnson to get his agreement ratified by the end of the month. Still, the two votes taken together potentially move the UK even further from a no-deal scenario, while also raising the chances of an extension to the deadline. Another possibility is a general election to try to break a parliamentary deadlock.
“The market simply wants some degree of certainty at this stage, and if an election is part of that journey, it will accept that,” said a market watcher.
The UK currency had stayed in a tight range in Tuesday’s (22 October) session before the vote, trading close to its average level since the Brexit referendum in 2016, based on Bloomberg’s British Pound Index. The pound closed 0.68% lower on Tuesday at USD1.2872. – Bloomberg News.
The US Dollar Index (DXY) rose 0.20% to 97.526, the euro lost 0.22% to USD1.1125, and the Japanese yen strengthened 0.12% to 108.49 per dollar.
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