EU Gives 2-Week Brexit Reprieve

GBP

Sterling ended a tough week on a high as the currency rallied off the news that European Union leaders would give Theresa May a 2-week reprieve to decide how Britain will exit the EU. This recovery comes after the pound experienced its biggest one-day fall of 2019 on Thursday as fears ramped up that the UK would crash out on March 29 without a deal.

European leaders gave the pound some respite as they have allowed Britain to have a short delay, but it does come with a caveat. In order to obtain the 22nd May exit date, May must first win parliamentary approval for her withdrawal agreement. If she is not able to, the exit date would be the 12th of April, or if she was to wish it, this Friday. The second scenario is worrying to investors as they hope to avoid a disorderly Brexit. Fears are also prevalent as May has already lost heavily twice, and the odds still remain stacked against her.

A good indication of this caution is reflected in the currency derivative markets, with one-month risk reversals on sterling going to multi-month highs. Effectively, short-term negative bets on the pound are rapidly increasing, a sign that investors are bearish in the immediate sense.

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