The Pound Sterling reached to a four-week high against the dollar in Asia trading on Monday following reports that British Prime Minister Theresa May was contemplating delaying the Brexit process beyond the March 29 deadline and stop the U.K. from leaving the European Union with no deal. Following the reports, the pound rose to a four-week peak of $1.3153 and was trading at monthly high while writing the report.
It has been reported that the British PM, at a meeting on Tuesday, is expected to give a green signal to her cabinet to deliberate over delaying the deadline beyond March 29. She is then expected to announce the cabinet's decision to the Parliament later in the day. However, she is likely to continue to get a deal done on time. Further, she is expected to formally propose ruling out a "no-deal" Brexit scenario, potentially delaying the Brexit date. [optin-monster-shortcode id="wxhmli4jjedneglg1trq"]
The EU Council President Donald Tusk remarked that seeking an extension would be the â'rational" thing to do". She would have to seek permission from EU for an extension, which the bloc is expected to agree to. However, how long the delay will be is still unclear. A delay will reflect a significant tone down of Mrs May's position who was adamant on leaving the European Union by the initial date, with or without a deal and had spent the last two years using it as a negotiation tactic.
The news comes on the heels of another substantial U-turn by the Leader of the Labour Party and Leader of the Opposition, Jeremy Corbyn, who decided to back a second Brexit referendum. The Labour Party will either put forward or support an amendment for a new Brexit referendum, to prevent the ruling party to pass a "damaging Tory Brexit."
Delay of Brexit date, together with a probable abandonment of the divorce, makes pro-Brexit politicians that the eventual exit may not happen after all. Mrs May can use this fear to coax hard-Brexiters into getting along with her deal or risk seeing the Brexit decision reversed.
The investors had priced-in the possibility of a hard-Brexit, which seems a distant possibility now. But after two significantly positive news, the pound strengthened, reflecting that the chances of no-deal Brexit have been priced out. Investors and business do not want to witness a crash-out exit, with most of the business community welcoming more time to prepare for the eventual result. The possibility of a hard-Brexit looks more distant now, and this should help Sterling against any material downward pressure.
Analysts warn that the increase in price is a knee jerk reaction to the news and further upside should be limited as a delay to Brexit now seems to be baked into market expectations. Moreover, the math is not in favour of a second referendum at the moment as a Commons majority supporting a second referendum seems unlikely. Additionally, the spike in Sterling seems a short-term gain, but no certainty about the longer-term effects. As more time is taken to reach a deal, uncertainty will keep on hanging over financial market longer.
For Pound, any amendments that augment the control of pro-European parliament over the Brexit process, and thus reducing chances of no-deal hard Brexit, is likely to be viewed positively by sterling watchers.