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Pound Gains as U.K. Parliament Rejects No-Deal Brexit From EU

By Bloomberg 13 March 2019

The pound gained after the U.K. Parliament rejected leaving the European Union without a deal, opening up the way for Britain to delay its departure and seek an orderly divorce.

Sterling was the best-performing Group-of-10 currency on Wednesday as investors bet lawmakers would rule out what is seen by businesses and economists as the worst-case scenario. The result means Parliament will vote Thursday to decide whether to postpone the U.K.’s exit from the EU in just over two weeks’ time.

The development came after Parliament a day earlier rejected a revised version of the withdrawal agreement that Prime Minister Theresa May has spent the past two years negotiating with the EU. May is planning to ask the EU for an extension to the March 29 Brexit deadline lasting about two months, according to people familiar with the matter.

“The removal of a no-deal exit is crucial for pound direction,” Neil Jones, head of hedge-fund currency sales at Mizuho Bank Ltd., said before Wednesday’s vote. “I would expect the pound to gain further, and structurally put a floor under the currency for the longer term.”

Rally Extended

Sterling rose 1.4 percent to $1.3256, and is poised for its biggest advance since November. It strengthened about 1 percent to 85.51 pence per euro. Sterling is the strongest G-10 peer against the dollar this year, rallying from an almost 21-month low touched in January. On Wednesday, a measure of implied overnight volatility of the pound versus the greenback trailed its level ahead of Tuesday’s vote, suggesting investors were expecting the outcome.

The motion on Wednesday isn’t legally binding and the U.K. could still potentially crash out of the EU on March 29 if no Brexit deal is agreed on and no delay is granted by the bloc.

“It should give the government a strong mandate to agree with the EU,” said Commerzbank currency strategist Esther Reichelt. “But in the end, the Parliament might not like the conditions attached to a delay by the EU.” DM

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