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The pound will be rebounding in the short term as the UK Parliament seizes control to try and block a no-deal - but with major political chaos and a looming election, the currency remains vulnerable.
This is the warning from Nigel Green, the CEO and founder of financial advisory giant deVere Group, which has more than $12bn under advisement.
It comes as MPs on Tuesday night in the House of Commons voted in favour of debating a motion to take the no-deal Brexit off the table and ask the EU for an extension. Prime Minister Boris Johnson has declared he will call a general election if the motion passes.
Mr Green observes: “After falling to its lowest level in 34 years on Tuesday, the pound began to rebound after the Prime Minister lost his Commons majority as Tory MP Phillip Lee crossed the floor to join the Liberal Democrats – putting Boris Johnson’s ‘do or die’ Brexit agenda under enormous pressure.
“There was then another enormous blow to the PM on Tuesday evening when he lost his first Parliamentary Brexit battle.
“MPs have, in effect, seized control of Parliament’s agenda on Wednesday and will try and force through legislation to stop a no-deal Brexit.
“The squeeze on Boris Johnson’s plans will have a positive effect on the pound in the short term – we can expect it to trade considerably higher in the coming sessions as the potential for the PM losing his threat of no-deal increases.”
He continues: “However, this might also be put in context. The rebound will be tempered by the possibility of an imminent election.
“An election always creates uncertainty and therefore turbulence for sterling, but even before it is called there will be major question marks as Jeremy Corbyn, the Labour leader, is now demanding no-deal is off the table before he agrees to go to the polls.
“And should a Corbyn-led Labour party win that election, there will be even more bad news for the pound.
“His anti-business rhetoric and high tax and low-profit policies would lead to a significant sterling sell-off.”
The deVere CEO concludes: “Whilst recent developments in the parliament move towards reducing the risk of a no-deal Brexit, it is still a critical issue for the performance of the pound.
“There remains major political upheaval in the UK and a looming election. This uncertainty means the currency remains vulnerable and volatile.”
