Pound trades higher as hopes for softer Brexit mount
By Abigail Townsend
Date: Monday 01 Apr 2019
(Sharecast News) - The pound edged higher on Monday, as the House of Commons geared up for another round of indicative votes on the UK's scheduled departure from the European Union.
Parliament will hold a series of debates on a short list of options from 1700 BST, with voting expected to start by 2000 BST. They include quitting without a deal on 12 April if MPs fail to support Theresa May's Withdrawal Agreement; remaining in the Customs Union; joining the Economic Free Trade Association and European Economic Area, dubbed Common Market 2.0; and putting any deal back to the public.
It remains unclear if any option will get an outright majority. When politicians held the first round of votes last week, no single option was passed. Nor is it clear if the government has to follow any option that does gain majority backing.
May's deal was voted down for a third time on Friday, sending the pound lower against the euro and dollar, as traders worried it meant the UK could yet crash out without a deal.
Since then, however, the pound has steadied, as traders increasingly bet on either a lengthy delay or a softer exit.
The option to remain in the Customs Union lost by just eight votes last week, while a public vote also received board support, which has been interpreted as Parliament coming around to a softer Brexit. There was also growing speculation on Monday that Labour would whip its MPs to back the so-called Common Market 2.0 motion.
As at 1530 BST, sterling was trading up 0.4% against the euro at 1.17 and against the dollar it was up 0.6% at just over 1.31.
Josh Mahoney, senior market analyst at IG, said: "All eyes are on the UK, with the second round of indicative votes raising the possibility of a softer Brexit. The pound has been under pressure of late, with the deadlock in Parliament leaving us closing in on a disorderly exit from the EU.
"However, today has the possibility of shifting that mindset, with Justice Secretary David Gauke hinting that May could find it difficult to go against the will of Parliament. After all, a decision to defy Parliament's wishes would also kill her own deal, given the difficult she has had in getting MPs on side.
"For sterling traders, a Customs Union would almost certainly provide a boost for the pound, as a softer Brexit becomes a distinct possibility."
Earlier on Monday, data showed a surprise surge in manufacturing output in March, further supporting the pound. However, as TD Securities noted: "Today's better-than-expected UK manufacturing PMI has given sterling a modest lift, but the result was driven more by fear that optimism over the future. This keeps the pound on a nervous footing as the Brexit process enters another crucial week."
The surprise factory spike was largely attributed to Brexit-induced stockpiling.
Dean Popplewell, vice president of market analyst at Oanda, said that talk of a possible general election - the third in four years - a was also "gathering steam".
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