The Brexit saga is back in the spotlight this week, with multiple key votes scheduled in Parliament and only 16 days to go until the U.K. is scheduled to leave the European Union.
On the agenda this week is a vote on Prime Minister Theresa May’s Brexit deal — a slightly reconfigured version of what she agreed with the EU late last year — on Tuesday. If the deal is rejected, lawmakers will get to vote on whether or not they want a hard, no-deal Brexit, which is considered the worst-case market scenario, on Wednesday. If Parliament votes against the no-deal outcome, lawmakers get their say as to whether or no to extend the deadline for leaving beyond March 29, kicking the Brexit can further down the road on Thursday.
Brexit Brief: Another May delay on the way?
First things first, analysts and investors widely May’s proposed deal to fail. It wouldn’t be the first time, and the margin is expected to be even wider than before. Further, they expect a delay of the U.K.’s exit, which could move the British pound GBPUSD, -0.1977% higher, as it would be seen as a move away from the worst-case scenario of leaving the EU with no agreement dictating the U.K.’s relationship with the EU on March 29.
Also see: Northern Ireland is taking a ‘business as usual’ approach as Brexit looms
“The pound is currently trading on thin ice, hovering around the symbolically significant level of $1.30 against the U.S. dollar,” said Hamish Muress, currency analyst at OFX. “Anything above this level is seen as Brexit certainty by investors, whilst anything below is seen as Brexit uncertainty.”
Sterling last traded at $1.3106 compared with $1.3149 late Monday, swinging some 2% since the start of the session. It was initially pushed higher on reports that European Commission President Jean-Claude Juncker gave May further reassurances over the treatment Northern Irish border, before the pound dropped on reports that U.K. Attorney General Geoffrey Cox said the changes in the deal may reduce the risk of Britain being trapped in the EU customs union but didn’t eliminate them.
“We’ll have to see what comes from these talks but it’s still very difficult to see MPs changing their minds at this late stage. What we can say on the margin is that we’ve just two pieces of good news. a) Theresa May may have something to bring to parliament tomorrow and b) the votes are still going ahead this week as promised,” said Jordan Rochester, FX strategist at Nomura.
Betting on the pound via the euro-sterling pair EURGBP, +0.5146% was still the way to go, according to Rochester, adding it would take a new election, a no-deal Brexit or a resignation by May to change his mind.
That said, “should the House of Commons reject the Withdrawal Bill tomorrow and the no-deal exit on Wednesday, the pressure on May to resign is likely to intensify,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Elsewhere, the Bank of England is thinking of the tail-risk scenarios.
“Always working on being ready for the worst case scenario the Bank of England has asked UK banks to triple their liquid assets so that they can buffer a financial shock if they need to. This would mean being able to withstand a situation in which banks don’t lend to one another for 100 days, rather than the normal 30 day period,” said Fiona Cincotta, senior market analyst at City Index.
But the BOE isn’t alone in planning ahead. Other reports suggest that Brexit minister Stephen Barclays has talked to the Labour Party about next steps should May’s deal fail.
Providing critical information for the U.S. trading day. Subscribe to MarketWatch's free Need to Know newsletter. Sign up here.
