The British pound pared its sharp losses against the U.S. dollar in late Tuesday trading, after the British Parliament rejected overwhelmingly Prime Minister Theresa May’s Brexit plan, leaving the process surrounding the U.K.’s exit from the European Union in disarray.
While the deal was expected to be voted down, the defeat by a 230-vote margin was more severe than anticipated. The House of Commons voted 432-202 against the deal, with 118 of May’s fellow Conservatives among the nays. The Labor Party, led by Jeremy Corbyn, will now bring a vote of no-confidence against the government, which will likely be held Wednesday. If May were defeated, elections could follow.
Read: After historic Brexit defeat — what’s next?
All else equal, the government will have three days following Tuesday’s defeat to present Parliament with an alternative deal.
Don’t forget: 3 reasons why investors outside of the U.K. should care about Brexit
Sterling
GBPUSD, -0.1788%
had a wild trading day on Tuesday, swinging some 1.9% top to bottom. It hit a brief peak of $1.2917 during Asian market hours and dived to a session low of $1.2670 just ahead of the vote.
After the vote got rejected, however, and May vowed she wasn’t trying to run down the clock on the Brexit timeline, the pound retraced all of its losses against the buck. It last fetched $1.2887, up from $1.2866 late Monday. Some market participants believe this is symptomatic of a reduced risk of no-Brexit and a higher probability of an extension of the March 29 exit date.
“The move is largely a knee-jerk reversal looks to be an unwind of sterling’s weakness seen in the hours leading up to the vote. On a knee-jerk basis, this looks a lot like a textbook buy-the-rumor/sell-the-fact response,” wrote TD Securities strategists led by James Rossiter.
“Combined with the still-very-uncertain political path ahead, we think a further advance above 1.2930 would be hard won at this stage,” they said.
The pound gained against the euro
EURGBP, +0.0676%
with the shared currency buying £0.8858, down 0.7%.
Read: City’s 10 biggest banks spend 1 billion on Brexit plans
Elsewhere, European Central Bank President Mario Draghi said the economic developments in the eurozone have been weaker than expected during a speech at the European Parliament, leading the euro to session lows.
The shared currency
EURUSD, -0.1227%
was down at $1.1416, compared with $1.1472 late Monday.
In European economic data, Germany reported 1.5% gross-domestic-product growth in 2018, its weakest figure in five years.
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In the U.S., the dollar firmed amid all the volatility in its European rival currencies. The ICE U.S. Dollar Index
DXY, +0.04%
climbed 0.3% at 95.932.
In economic data, the producer-price index declined 0.2% in December, versus an expected 0.1% dip. For 2018, wholesale inflation was unchanged at 2.5%. The Empire State manufacturing index meanwhile fell to its lowest level in more than a year.
A host of Federal Reserve speakers were on throughout the day, including Minneapolis Fed President Neel Kashkari saying the economic data didn’t justify further rate hikes. Kansas City Fed President Esther George, a voting member of the Federal Open Market Committee, and one of the central bank’s most consistent proponents of rate increases, said “now might be a good time for a pause” in the hiking cycle to allow the Federal Reserve to get its bearings.
Read: Fed’s George, often hawkish, says it might be a good time for interest-rate pause
Against the Japanese yen
USDJPY, -0.17%
the dollar moved higher, reversing Monday’s move, last buying ¥108.67 versus ¥108.15 late Monday in New York.
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Source : MTV
