The pound fell sharply on the foreign exchanges after MPs failed to seize control of the Brexit negotiations from Theresa May in order to rule out a no-deal departure from the EU.
Sterling dropped by more than a cent against the US dollar to its lowest point of the day after a series of votes in the House of Commons were seen as increasing the prospect of Britain leaving without an agreement on 29 March.
The pound has been rising steadily on the currency markets since MPs voted by a majority of 230 to reject the withdrawal agreement negotiated between London and Brussels but, after trading at about $1.32 earlier in the day, sterling fell to $1.3088 against the dollar when MPs passed Graham Brady’s amendment giving the prime minister scope to restart negotiations with the EU.
“The fact we are now staring at the Brexit deadline of 29 March once again as a cliff-edge event has disappointed many in the market who were betting on a sterling recovery,” said Jeremy Thomson-Cook, WorldFirst head of FX strategy.
David Cheetham, an analyst at XTB online trading, said: “On the one hand, the outcome represents a victory for the government, in defeating the [Yvette] Cooper amendment and seemingly uniting her party with the vote in favour of the Brady motion, but really it leaves the UK no closer to a deal which is acceptable both by parliament and the EU.
The Brady amendment demands that the backstop arrangement in the EU withdrawal agreement to prevent a hard border in Northern Ireland should be replaced with 'alternative arrangements'. The backstop is hated by many Tory Brexiters because it would keep the UK in an effective customs union until an alternative solution could be found to prevent the need for infrastructure at the border. The backstop has no time limit and exit can be only by joint agreement between the UK and the EU.
Brexiters would like to see the backstop replaced either by an as-yet-unknown technological solution to ensure a smooth border or at least an end date or a unilateral exit mechanism.
In order to seek this from Brussels, Theresa May decided the government should back an amendment tabled by Sir Graham Brady, a Tory backbencher, which said the backstop should be replaced. She also pledged to reopen the withdrawal agreement and change the text.
The European Union has been adamant that both things cannot happen, but Downing Street believes that gaining a majority in the House of Commons for the change would demonstrate the crucial breakthrough needed to avoid a no-deal Brexit.
After initial scepticism, members of the hard-Brexit European Research Group swung behind the government, though Tory remainers rebelled against it, and the amendment passed by 16 votes. However, the group has made it clear it will not necessarily back whichever compromise she may come back with.
“The past fortnight’s trade has been characterised by a steady appreciation in the pound, which was largely due to a growing consensus who believe that the chances of a no-deal were rapidly diminishing, but this narrative is now being challenged a little more.”
The pound bounced around the same mark in overnight trading and was at $1.309 at 5.30amGMT.
The FTSE100 was up 0.7% on Wednesday morning, however, as the falling pound is good news for the index’s large number of multinational companies, which report profits in US dollars.
