Pound Hits Highest in Over a Month as Johnson Strategy Crumbles
The pound rallied for a third day after Parliament tore up U.K. Prime Minister Boris Johnson’s Brexit strategy.
(Bloomberg) --
The pound rallied for a third day after Parliament tore up U.K. Prime Minister Boris Johnson’s Brexit strategy and denied his request for a snap election, tempering fears of further political turmoil.
Sterling headed for its biggest weekly gain since May after lawmakers voted to force Johnson to delay Brexit for three months. An election is still on the horizon with the prime minister losing his majority earlier this week, but it may not come until after an extension to the deadline has been set, reducing the risk of a chaotic exit from the European Union.
The U.K. currency has recovered the ground it lost since Johnson announced last week that he would suspend Parliament for over a month ahead of the Brexit deadline, setting off a rebellion which ultimately led to lawmakers seeking to block him from pursuing a no-deal. It is headed for a weekly gain of 1.5%.
Johnson plans to appeal directly to voters in a speech “to decide what they want” through an election, according to a statement from his office. Still, he needs two-thirds of Parliament to back him in order to call one, and the opposition Labour party wants the Brexit delay to pass into law first.
“My expectation is Brexit is delayed until Jan. 31 with an election after the initial deadline and before the end of January,” said Neil Jones, head of currency sales for financial institutions at Mizuho Bank Ltd. “A delay for both Brexit and a general election will continue to send the pound higher.”
The pound gained 0.7% to $1.2336, after rallying 1.4% Wednesday. The currency also strengthened 0.5% to 89.63 pence per euro.
Even with the results in Parliament Wednesday evening, investors are primed for an election to come at some stage. Pressure is mounting on the Prime Minister with 21 rebel MPs expelled from the Conservative party this week. His own brother Jo Johnson resigned on Thursday, citing tension between “family loyalty” and the “national interest.”
The pound’s fate in the longer-term depends on when an election is called and who looks likely to win. Traders may sell the currency on the announcement of a snap poll, according to Wells Fargo currency strategist Erik Nelson, as it would bring the risk of a coalition with Nigel Farage’s Brexit Party.
“If an election were held today, the Conservative Party would likely win the most seats in Parliament, but fall well short of an outright majority,” said Nelson. “A Conservative/Brexit coalition gaining an outright majority would be the most significant downside scenario for the pound, as this group would likely be freer to push for a no-deal Brexit.”
To contact the reporter on this story: Charlotte Ryan in London at cryan147@bloomberg.net
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, William Shaw
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