Pound Falls as Commons Vote on Brexit Law and BOE Decision Loom
(Bloomberg) -- The pound touched a fresh seven-month low against the dollar on Wednesday ahead of a second vote on Parliament getting a say on a final Brexit deal with the European Union.
Sterling fell for a third day after the government saw defeat in a similar vote in the House of Lords on Monday. If the House of Commons decides in favor of Parliament having a “meaningful vote” it could have an impact on Prime Minister Theresa May’s political future and the path Brexit negotiations take. Traders are also factoring in the risk of the Bank of England pushing back on the timing of interest-rate hikes in its statement on Thursday.
“Political risks continue to haunt sterling,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA. “Today’s vote in the House of Commons on the EU withdrawal bill amendment could become the focal point of market anxiety and fears about the British political outlook on the road to Brexit.”
Sterling slipped 0.1 percent to $1.3163 by 8:55 a.m. in London, after touching $1.3148, its lowest since November. The yield on 10-year gilts was little changed at 1.28 percent, having fallen 16 basis points from a recent high on June 12.
If the Commons rejected the amendment the pound “should remain vulnerable under this outcome, given the threat of a Hard Brexit,” Marinov wrote in a client note. “Subsiding political uncertainty may mute any potential losses with investors turning their attention to the June BOE policy meeting.”
Sterling is slowly losing support from the prospect of tighter monetary policy from the BOE, as economists and strategists are growing increasingly doubtful of an August rate hike. Money markets are now pricing in a 43 percent chance of a 25-basis-point increase in that meeting, compared to a 55 percent chance at the start of last week.
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