The pound experienced an extremely volatile day on Tuesday. The political situation in the UK saw the pound initially weaken to three-year lows and then rally in the aftermath of lawmakers blocking a no-deal Brexit.
Sterling began the day at three-year lows, as it tumbled over no-deal fears and the threat of a general election. If the flash crash of 2016 is excluded, these are the lowest levels for Sterling since 1985. The fall came after Johnson threatened dissenters with a snap general election, which added uncertainty to an already uncertain picture. Alongside this, construction companies also suffered the biggest drop in new orders last month since the lows of the 2008 financial crisis.
However, the rally began once Johnson lost his majority in parliament, as Tory Remainer Philip Lee crossed the floor and defected to the pro-EU Liberal Democrats. In the immediate near term, a no-deal was made less likely as the government’s ability to enforce power within the Commons had diminished.
We then saw a further rise later on, as lawmakers approved a motion to seize control of parliamentary business from the government, a measure that is seen as being vital in blocking a no-deal. 21 conservative rebels helped to inflict defeat on the prime minister, with 328 votes being enough to suspend the Commons rule that says only the government can create new laws.
The opposition are now expected to try and pass legislation, forcing Boris Johnson to ask the EU to postpone Brexit if no new deal has been struck by 19 October, or if MPs have not endorsed a no-deal. In response, Johnson called for a snap general election as a way of obtaining a breakthrough. This will require the support of two-thirds of the House, so it remains uncertain if this will be passed.
All Day – GBP: UK Parliament in Session