Pound Traders Eye Next Political Hurdle as May Heads to Brussels

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The pound may have won a reprieve as U.K. Prime Minister Theresa May survived a bid to oust her, but its fate is likely to hinge on her ability to win concessions from the European Union over her Brexit deal.

Sterling climbed on Thursday after its best day in six weeks. With May now safe from a challenge from her own party for at least a year, investors will turn their focus back to the Brexit deal, which still doesn’t have enough support to pass through Parliament.

Pound Traders Eye Next Political Hurdle as May Heads to Brussels

“The vote confirmed that the Conservative party is divided and that there is no parliamentary majority for May to pass the deal if she does not get support from some Labour MPs,” said Roberto Cobo Garcia, a currency strategist at BBVA. “Sterling’s appreciation will only have longer legs if an orderly Brexit or even a Bremain are assured.”

The pound gained 0.2 percent to $1.2656 by 11:00 a.m. in London, after rallying 1.1 percent Wednesday. It also rose 0.2 percent to 89.87 pence per euro. Sterling is still near the bottom of its recent range and is headed for a weekly loss, with just over three months to go until Brexit and no further clarity on the outcome.

Investors started the week hoping it would provide certainty on the fate of May’s Brexit divorce deal, with a vote in Parliament set for Tuesday. Now the vote won’t take place before Christmas.

“The confirmation of her surviving changes nothing in regards to what we are all really worried about,” said Nomura International Plc currency analyst Jordan Rochester.

May is heading to a summit in Brussels after her meetings with EU leaders so far this week haven’t yielded the legal assurances on the Irish border that lawmakers are seeking. Yet the EU have already said they won’t reopen talks on the deal, and won’t make the Irish border backstop temporary.

Pound Traders Eye Next Political Hurdle as May Heads to Brussels

With the fate of the Brexit deal still unclear, strategists and traders are left trying to assess the probability of outcomes from a general election to another referendum. The latest political developments increase the probability that the decision to leave Europe will be reversed, according to Goldman Sachs Group Inc.

“Most investors we speak to still prefer to leave the pound well alone unless they have to,” said Royal Bank of Canada currency strategist Elsa Lignos.

©2018 Bloomberg L.P.