PM May believes the risks of Brexit being thwarted are now greater than the UK going through the no-deal scenario, as it could trigger the breakup of the UK. The biggest risk to cable remains the no-deal scenario, so we should not be surprised if we see the British pound gain on growing expectations for Article 50 to be extended.
This morning cable had a plethora of headlines that kept price action volatile. We did see price overreact to headlines that the ERG Brexiter colleagues will vote for PM May’s deal unless Hilary Benn withdraws his amendment that would rule out a no-deal Brexit. The initial spike was reversed after a separate release stated the pro-Brexit ERG will vote against PM May’s deal.
The focus over the next 24 hours will be on which amendments will be added to tomorrow’s vote. The final vote may not even be what was agreed upon with the EU. One amendment that could be inserted is a cutoff date for the Irish backstop, and if the government caves, we will wait to see the EU’s reaction.
If MPs do go forward with tomorrow’s meaningful vote, the margin of defeat will be closely watched. A defeat by 100 votes, could be very bullish for the British pound as expectations would grow that PM May could pass the deal on a second or third attempt. A severe defeat of over 200 votes could be devastating to cable and we could see between 3-5% weakness with sterling against the dollar.
After tomorrow’s vote, we will then have greater clarity on what UK Labour Leader Jeremy Corbyn next move will be. He could very well call a vote of no confidence tomorrow night, but he very might wait until after he sees what PM May’s plan entails. The Plan B option would need to be finalized within three days of the vote.