Pound Climbs as Theresa May Survives No Confidence Vote

Theresa May has seen off another immediate threat to her government, winning a vote of no confidence, launched by leader of the opposition, Jeremy Corbyn. May won the vote by 325 votes to 306, a margin of just 19 votes.

The pound rose immediately following the results; a small relief rally reflecting the short-term stability that Theresa May’s victory provides. Let’s not forge that the markets were expecting May to win. This was the outcome that was priced in since Jeremy Corbyn called the vote of no confidence following May’s humiliating Brexit deal defeat.

Market reaction
The pound had a knee-jerk jump of 0.2% versus the dollar hitting resistance close to the $1.29 handle, before paring almost all those gains shortly after.

Against the euro the pound was faring slightly better jumping close to 0.3% and hitting a 7-week peak of 0.8839 before giving back some ground. The pound is clinging on to gains of 0.25% versus the euro on Wednesday.

GBPJPY climbed steadily across the session on Wednesday, putting in a meaningful move through the psychological level of 140.00. Again, the pound climbed higher versus the Japanese Yen on the results, touching a peak of 140.71 before giving that the last leg higher back. GBPJPY is still hanging on to gains of over 0.4% across the session.

A marginally stronger pound has weighed on the FTSE. Given multinationals make up around 70% of the FTSE index, a stronger pound is a less beneficial exchange rate for these firms, which makes a stronger pound bad news for the FTSE index.

More domestically focused stocks such as house builders and British banks could have a small jump on Thursday’s open.

What Next?

Theresa May and traders alike will now turn their full attention to Plan B. Theresa May has until 21st January to put forward the next steps. Plan B could involve:
1. Renegotiation with Brussels
2. Extending Article 50
3. Bringing the deal back for a 2nd vote
4. 2nd referendum
5. No deal Brexit

Slowly the less favourable options are being shaken out, first the Tory leadership contest, now the general election; which is offering support to the pound. The road ahead is still extremely rocky, which will ensure plenty of volatility remains.

What the market wants?
The market is looking for the removal of the no deal Brexit risk or even better no Brexit. Any steps however large or small taking the UK away from a no deal Brexit will boost the pound. Right now the default option if there is no deal, is that the UK crashes out in a disorderly Brexit on 29th March, a fact which will keep any pound rallies capped.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.