UK MPs Vote in Favor of a Brexit Delay, Markets in ‘Risk On’ Mode

Brexit remained on center stage, with UK MPs voting in favor of delaying the Brexit process. Nevertheless, sterling reacted little to the outcome, perhaps because it was widely anticipated. Now focus turns to a potential third “meaningful vote” on May’s deal, as well as the EU summit next week. Elsewhere, most equity markets traded in a risk-on mode, with Asian indices taking the steering wheel this morning, on optimism over the US-China trade negotiations.

UK MPs Support Extension, New ‘Meaningful Vote’ and EU Summit in Focus

The pound was found within a ±0.15% range against most of the other G10 currencies. The only currency against which it moved more was AUD, with GBP underperforming. The pound was lower against most of the others as well, gaining slightly only against JPY and EUR and trading virtually unchanged against USD and CAD.

Brexit remained in the spotlight yesterday, with UK Parliament members voting 412–202 in favor of an extension to Article 50. However, the pound reacted little to the vote. Following Wednesday’s surge on the rejection of a no-deal Brexit under any circumstances, GBP bulls may have preferred to lock gains instead of adding to their positions. After all, approving a delay was the expected outcome and as we noted in our previous reports, it may have been already priced in.

Now focus turns to a potential third “meaningful vote” on May’s deal, as well as an EU summit next week. Although UK MPs voted in favor of a Brexit extension, consent from all 27 EU member states is needed before such a delay takes flesh. The motion approved yesterday is setting out the option for asking a short delay if a Brexit deal is agreed by next Wednesday, or a longer one otherwise. Meanwhile, EU Council President Donald Tusk said that EU leaders may consider an extension of at least one year if the UK finds it necessary to rethink its strategy.

Therefore, the thread of a longer-extension, which could result in a softer deal or no Brexit at all, may prompt some hardliners to support May’s deal at a third “meaningful vote” next week. That said, marketwise, all these outcomes may be positive for the pound as they remove the risk of a disorderly withdrawal. For the…