Brexit Bulletin: May’s Latest Defeat Takes Its Toll On The Sterling

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The sterling is expected to remain sensitive to the latest Brexit developments for the rest of the week after U.K. PM Theresa May suffered a major defeat against the so called Brexit Rebells, yesterday. Specifically, Rebel Conservatives have forced Theresa May into a climbdown, handing parliament greater control of Brexit if she failed to seal a deal with the E.U.

May is now more likely to also accept a deadline by which she must secure a deal with Brussels, if she wants to stay in the driving seat of negotiations. Her ministers must also now spell out the detail of her compromises within next few days. If May and her ministers do not come back with concrete answers, they risk losing complete control of the Brexit negotiations, with Tory rebels threatening with a major commons loss that would destabilise May’s leadership.

It is also important to note that the Rebel threats were not the only blow Ms May suffered in the House of Commons office. At 7am on Tuesday, May also opened a resignation letter from junior minister Phillip Lee, who quit because he said the government was overlooking “parliamentary sovereignty” in its approach to Brexit.

At the conclusion of the meeting, Theresa May ultimately persuaded all but two of her MPs to back her in the decisive vote in Westminster but she increasingly appears to be little more than a hostage to the warring factions of a divided Conservative party. Ms May has now been tied into a strict timetable of having to lay out her own proposals if she failed to seal a deal by November, and then gain parliamentary approval for them.

If the rebels, in alliance with Labour, could threaten May into revealing her deck of cards on a Brexit deal on Tuesday, they will definitely do it again. Ultimately, they appear increasingly likely to corral May into a considerably softer Brexit than she first laid out – if she can hold on to her parliamentary power for that long.

The latest Brexit developments have definitely taken their toll on the fragile GBP which in recent weeks is striving to remain above the $1.33 level. Sterling will also come under pressure this week amid a deluge of U.K. data. Next week, the Bank of England is fully expected to leave monetary policy levels untouched at its scheduled meeting, but any hawkish calls for a 0.25% rate hike at the August, could provide some much needed support to the GBP pairs.

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Sources: Independent, Bloomberg

*Please note that this article is not meant to be construed as investment advice or suggestion of an investment strategy with respect to any financial instrument.

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