Brexit debate sends Pound to 18 month low against US Dollar
5 December, 2018
Sterling yesterday fell to its lowest value against the US Dollar since April 2017, as Theresa May suffered 3 defeats in the Commons in the second day of a full week of Brexit debate. Rates for buying Euros also fell to their lowest since September.
The government’s refusal to share its full legal advice over exiting the customs union in the future was overturned, sending the Pound lower, but exchange rates did recover on the news that MPs would have more of a say on what happens next in the event of Theresa May losing the key vote on her Brexit deal on Tuesday, which is widely expected.
Sterling has been trading lower since ministerial resignations in November indicated that the negotiated Brexit deal would be unlikely to be accepted in Parliament, and it seems very likely that rates will fall further next week if the vote does not go Mrs May’s way.
What would happen after that? Nobody knows, and it’s almost always true that political uncertainty hurts the Pound. Some of the scenarios are:
– A vote of no confidence in the government leads to a new Conservative Prime Minister, or a General Election
– Article 50 is revoked or its conclusion date extended
– There is enough support among MPs for a second referendum or “people’s vote”
– Theresa May survives and brings the deal back to parliament at a later date, potentially with some minor changes, and it is agreed by parliament
– There is no decisive action, and the default position is that the UK leaves the EU, without any transition period deal, on March 29th 2019
It is hard to see how any of the above outcomes would be positive for the Pound. So if you have Euros, Dollars or any other currency to buy in the coming weeks and months, it is well worth considering using a forward contract to guarantee your exchange rate for a transfer at a future date.
Many people are still comparing today’s exchange rates with those of the brief period of optimism when the ‘deal done’ headlines in November sent the Pound higher. But hindsight is of no value, and comparing today’s exchange rates instead with what they might be over the winter months, is a more realistic way to plan and budget.
Today we have a speech from European Central Bank Governor, Mario Draghi, at 8.30am, and the Bank of Canada’s interest rate decision and statement at 3pm. There is plenty of economic data to be released with only 2 more full trading weeks until Christmas, but inevitably the key twists and turns in Brexit’s path to completion are likely to be what moves exchange rates most, for the rest of this year and perhaps beyond.