Sterling drops as Brexit concerns escalate

Sterling hit 3-month lows in the second week of May ahead of next months vote on Brexit. The uncertainty is generating unwanted volatility which is affecting many UK assets, which can be followed on iFOREX index trading. Stock prices have also been on the defensive. Yields have been falling which has put additional pressure on the currency. It appears that parliament members on both sides of the Brexit issue have committed to vote down Theresa May’s withdrawal agreement.

Voting no on Withdrawal Agreement

As it stands, MP’s are planning to vote no to Theresa May’s withdrawal agreement. The vote is scheduled to occur in early June and ministers on both sides are expected to vote no.

May said that the Brexit legislation and the withdrawal bill could be scheduled for the week beginning June 3, 2019 as it is key for the UK to leave the EU before the summer parliamentary recess begins.

At the same time, discussions with members of the Labour party continue. In fact, May met with the leader of the Labour party Jeremy Corbyn this week but not progress was made toward a mutual agreement between the two parties. The Labour party is backed by the Liberal Democrat MPs who say they will vote no to any agreement unless a new referendum is attached. Many in the Liberal Democrat party believe that the government is running out of options. Liberal Democrats will not be complicit in a botched version of the Brexit without letting the public having a final say with another referendum.

The Scottish National party’s Westminster leader, Ian Blackford, also reiterated that the bill will be voted down without a referendum.

Providing a withdrawal agreement to the House of Commons with no majority has many risks for the government. If the bill fails to pass at second reading, May would not be able to bring it back during this parliament and may be faced with proroguing parliament in order to make any new attempt.

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May’s Party is Not Supportive

Theresa May has faced calls to resign from her backbenchers as they said Tory activists have lost confidence in her ability to lead the country and come up with a plan that will gain a consensus. Tory MP Peter Bone used Prime Minister’s Questions to quote a letter from his local Conservative activists saying Mrs. May’s deal is worse than staying in EU.

The Capital Markets

The capital markets are not favorable to uncertainty.

The pound has declined and recently hit a 3-month low as concerns over an early June Brexit vote are likely to be unfavorable. While economic data has been mixed, the Bank of England is caught in a difficult situation and cannot provide accommodation or tightening until this situation is resolved. Politics are now running monetary policy as the head of the BoE Carney is hamstrung. It appears that a new referendum is the only way to resolve this issue. If the country again votes to leave the EU, May will have the leverage she needs to get a withdrawal bill over the finish line.