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Sterling steady as May plays on

Sterling steady as May plays on

Theresa May gets to play Brexit for at least another day (two weeks in fact.)

  • The strategic nous of Labour’s Yvette Cooper is also becoming clearer
  • Cooper earlier backed a (stalking horse?) amendment aiming to hold the PM to a vote to delay Brexit
  • But that plan was pulled at the last minute, leaving Cooper’s new amendment that simply noted a vote promised for 14th March
  • In another surprise, it won government backing, passing 502/20

Other key developments

  • Amendment protecting EU citizens’ rights agreed without a vote
  • Labour’s Jeremy Corbyn got fully on board the Second Referendum train…though it’s going nowhere as it lacks a majority
  • 20 Conservatives voted against Cooper’s plan whilst 88 abstained (AKA a minority)

What happens?

As things stand, the most likely fate of the government’s Brexit plan is still a defeat by 12th March, paving the way for a delay request

Sterling outlook

The cost of options expiring after 29th March continues to slide. In other words, demand to insure against or capitalise on sharp post-Brexit volatility has stopped rising

Price chart: sterling/dollar implied volatility – hourly [28/02/2019 11:37:21]

Source: Refinitiv/City Index

  • In lieu of (likely) further twists and turns, it’s now a waiting game (including for sterling)
  • Technically, note the pound is elevated above its 21-day average, which itself points higher
  • But after a 4.5% surge from February lows, caution plays against that ebullient clip continuing
  • After GBP/USD topped $1.33 for the first time since September, dips below are probable
  • January’s $1.3216 high is a target

Price chart: sterling/U.S. dollar spot – daily [28/02/2019 12:01:49]

Source: Refinitiv/City Index

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