Pound Set for Best Day Since 2008 After May’s Brexit Statement

  • May promises U.K. parliament vote on her final Brexit deal
  • U.K. currency rebounds from lowest level since October

Best Day for British Pound Since 2008

The pound climbed against the dollar, set for its biggest advance since the global financial crisis, as Prime Minister Theresa May said U.K. lawmakers will get a vote on the final deal for an exit from the trading bloc.
 

The currency strengthened against all major counterparts as May made the announcement in a speech laying out the government’s Brexit strategy, which involves pulling out of the EU’s single market. Sterling is rebounding from Monday’s biggest decline in a month that came after the Sunday Times reported the main substance of May’s speech without the additional detail on the parliamentary vote.

Despite its gains on Tuesday, the pound remains about 17 percent weaker since the nation opted to walk out of the EU in the June referendum. The currency’s slump since the vote has pushed up the cost of imported goods, with data released before May’s speech showing that inflation surged at the fastest clip in more than two years.

“The fact that the U.K. Prime Minister Theresa May will put a final Brexit deal to vote in both Houses of Parliament is positive for sterling,” Athanasios Vamvakidis, a London-based strategist at BofAML, said in e-mailed comments. “In order for the parliament to approve it the deal has to be good.”

May dodged a question on what would happen if parliament rejects the deal that she manages to reach with her EU counterparts, saying only that she expects lawmakers to back it.

The pound climbed 2.7 percent to $1.2372 as of 4:11 p.m. in London and touched $1.2397, the strongest level since Jan. 6. The currency fell to as low as $1.1986 on Monday.

The reaction to May’s speech is a marked contrast to those that followed her previous interventions, which had been seen as a trigger to sell the currency. Sterling fell following her speech at the Conservative Party conference in October, which fanned speculation she was eyeing a clean break with the EU, and dropped to the lowest level since October last week following her first television interview of 2017.

“The final take on this speech is that May has come across very well,” said Stephen Gallo, analyst at BMO Capital Markets. “This, in addition to the economic fundamentals, are good arguments for not being aggressively short GBP/USD below 1.2000.”

  • The announcement on the Parliament vote fueled the initial extension of the GBP rally, partly because it raises expectations that MPs less in favor of Brexit could have more influence, according to Josh O’Byrne, strategist at Citigroup; still, big picture hasn’t changed much after this speech
  • May didn’t add to “hard-Brexit” fears, and hence the “sell-the-fact” reaction in the market, Manuel Oliveri, strategist at Credit Agricole, says in e-mailed comments
  • Cable initially rallied in response to the speech on a short squeeze move, Nomura’s Jordan Rochester writes
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